Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.
CHINA ZHESHANG BANK CO., LTD. 浙商銀行股份有限公司* (A joint-stock company incorporated in the People’s Republic of China with limited liability) (Stock Code: 2016)
2016 INTERIM RESULTS ANNOUNCEMENT
The board of directors of China Zheshang Bank Co., Ltd. (the “Bank”) hereby announces the unaudited results of the Bank for the six months ended June 30, 2016. This announcement, containing the full text of the 2016 interim report of the Bank, complies with the relevant requirements of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) in relation to information to accompany preliminary announcements of interim results.
Publication of Interim Results Announcement and Interim Report
Both the Chinese and English versions of this results announcement are available on the websites of the Bank (www.czbank.com) and the Stock Exchange (www.hkex.com.hk). In the event of any discrepancies in interpretations between the English and Chinese text, the Chinese version shall prevail.
Printed version of the 2016 interim report of the Bank will in due course be delivered to the H Share holders of the Bank and available for viewing on the websites of the Bank (www.czbank.com) and the Stock Exchange (www.hkex.com.hk).
By order of the Board China Zheshang Bank Co., Ltd. Shen Renkang Chairman
Hangzhou, the PRC August 19, 2016
As at the date of this announcement, the executive directors of the Bank are Mr. Shen Renkang, Mr. Liu Xiaochun, Ms. Zhang Luyun and Mr. Xu Renyan; the non-executive directors are Mr. Wang Mingde, Ms. Wang Yibing, Ms. Shen Xiaojun, Ms. Gao Qinhong, Mr. Hu Tiangao and Ms. Lou Ting; the independent non-executive directors are Mr. Jin Xuejun, Mr. Tong Benli, Mr. Yuan Fang, Mr. Dai Deming, Mr. Liu Pak Wai and Mr. Zheng Jindu.
* China Zheshang Bank Co., Ltd. is not an authorized institution within the meaning of the Banking Ordinance (Chapter 155 of Laws of Hong Kong), not subject to the supervision of the Hong Kong Monetary Authority, and not authorized to carry on banking and/or deposit-taking business in Hong Kong. Important Notice
The Board of Directors, the Board of Supervisors, Directors, Supervisors and Senior Management of the Company confirm that the contents in this report are true, accurate and complete and have no false representations, misleading statements or material omissions, and they will individually and collectively accept legal responsibility for such contents.
The 6th meeting of the fourth session of the Board of the Company, held on August 19, 2016, approved this interim report. The Company has 16 Directors, among which 13 Directors attended the meeting in person, and Mr. Xu Renyan, Ms. Lou Ting and Mr. Yuan Fang had authorized Mr. Liu Xiaochun, Ms. Gao Qinhong and Mr. Tong Benli to attend the meeting on their behalf, respectively, which was in compliance with the requirements of the Company Law of the People’s Republic of China and the Articles of Association of the Company. 12 Supervisors of the Company attended the meeting.
Approved by 2015 annual general meeting held on June 15, 2016, the Company has declared the final dividend for 2015 of RMB1.30 per 10 shares (tax inclusive) to the shareholders of ordinary shares whose names appear on the register after the closing of trading as of June 27, 2016. The total dividend declared was RMB2.335 billion. The Company neither declares interim dividend for 2016 nor makes any transfer from reserves to share capital.
Unless otherwise illustrated in this report, the currency for amounts herein is RMB. Certain amounts and percentage numbers in this report have been rounded. Any discrepancies in any table between totals and sums of the amounts are due to rounding.
The interim financial report for 2016 of the Company is unaudited.
Shen Renkang (Chairman of the Bank), Liu Xiaochun (President of the Bank) and Liu Long (Chief Financial Officer of the Bank) undertake that the financial report in this report is true, accurate and complete.
China Zheshang Bank Co., Ltd. is not an authorized institution within the meaning of the Banking Ordinance (Chapter 155 of the Laws of Hong Kong), not subject to the supervision of the Hong Kong Monetary Authority, and not authorized to carry on banking and/or deposit-taking business in Hong Kong. Contents
Definitions 2
Company Profile 3
Financial Summary 5
Management Discussion and Analysis 7
Corporate Governance 53
Changes in Shares and Information on Shareholders 57
Directors, Supervisors, Senior Management, Employees and Institutions 63
Significant Events 67
Report on Review of Interim Financial Information 70
INTERIM REPORT 2016 1 Definitions
“Articles of Association”: the articles of association of China Zheshang Bank Co., Ltd.
“Board” or “Board of Directors”: the board of directors of the Company
“Board of Supervisors”: the board of supervisors of the Company
“CBRC”: China Banking Regulatory Commission
“Company”, “Bank”, “our Bank”, China Zheshang Bank Co., Ltd. “China Zheshang Bank” or “CZBank”:
“Company Law”: the Company Law of the People’s Republic of China
“CSRC”: China Securities Regulatory Commission
“Director(s)”: the director(s) of the Company
“Domestic Shares”: ordinary shares issued by the Company with a nominal value of RMB1.00 each, which are subscribed for and credited as paid in full in RMB
“H Shares”: overseas-listed foreign shares in the share capital of the Company with a nominal value of RMB1.00 each, which are subscribed for and traded in Hong Kong dollars. Such shares of the Company are listed and traded on the Hong Kong Stock Exchange
“Hong Kong Listing Rules”: The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited
“Hong Kong Stock Exchange” or “SEHK”: The Stock Exchange of Hong Kong Limited
“Model Code”: the Model Code for Securities Transactions by Directors of Listed Issuers, as set out in Appendix 10 to Hong Kong Listing Rules
“RMB” or “Renminbi”: Renminbi, the lawful currency of the PRC
“SFO”: Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
“Supervisor(s)”: the supervisor(s) of the Company
2 CHINA ZHESHANG BANK CO., LTD. Company Profile
1. Company name in Chinese: 浙商銀行股份有限公司(Abbreviation in Chinese: 浙商銀行) Company name in English: CHINA ZHESHANG BANK CO., LTD. (Abbreviation in English: CZBANK)
2. Legal Representative: Shen Renkang
3. Registered and office address: No. 288, Qingchun Road, Hangzhou, Zhejiang, China Postcode: 310006 E-mail: [email protected] Website: www.czbank.com Customer service hotline: 95527 Tel of investor relations management: 86-571-88268966 Fax: 86-571-87659826
4. Principal place of business 18/F, Tesbury Centre, 28 Queen’s Road East, Wanchai, Hong Kong in Hong Kong:
5. Authorized representatives: Xu Renyan, Liu Long
6. Secretary to the Board: Liu Long
Joint company secretaries: Liu Long, Wong Yat Tung
7. Stock exchange where Hong Kong Stock Exchange the securities are listed: Stock abbreviation: CZBANK Stock code: 2016
8. Share registrar: H Shares: Computershare Hong Kong Investor Services Limited Shop 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong
Domestic Shares: China Securities Depository and Clearing Corporation Limited Building A, Hengao Centre, No.17, Taipingqiao Street, Xicheng District, Beijing
INTERIM REPORT 2016 3 Company Profile
9. Legal advisors: As to PRC Laws: Zhejiang T&C Law Firm As to Hong Kong Laws: Freshfields Bruckhaus Deringer
10. Compliance Advisor: ABCI Capital Limited
11. Accounting firms engaged by the Company: Domestic auditor: PricewaterhouseCoopers Zhong Tian Certified Public Accountants (Special General Partnership) Office address: 11/F, PricewaterhouseCoopers Center, No. 202 Hubin Road, Shanghai International auditor: PricewaterhouseCoopers Certified Public Accountants Office address: 20-24/F, Prince’s Building, Central, Hong Kong
12. Place of maintenance of this report: Office of the Board of the Company Website of Hong Kong Stock Exchange for publishing this report: www.hkexnews.hk
13. Other information about the Company: Financial institution license serial number: B0010H133010001 Corporate business license serial number: 330000000013295 Registration date: July 26, 2004 Tax registration certificate number: Guo Shui Zi 330000761336668 Zhe Di Shui Zi 330000761336668 Organization code: 76133666-8
This report is prepared in Chinese and English, respectively, and the Chinese version shall prevail if any ambiguities arise from the understanding of the Chinese and English texts.
4 CHINA ZHESHANG BANK CO., LTD. Financial Summary
(The financial data and indicators set forth in this interim report are prepared in accordance with IFRSs and presented in RMB, unless otherwise specified)
Key Financial Data and Indicators
Period-on-period January to January to Increase/Decrease Operating results (RMB’000) June 2016 June 2015 (%) Operating income 15,964,375 10,533,534 51.56 Profit before income tax 6,245,984 4,408,304 41.69 Net profit attributable to shareholders of the Company 4,734,822 3,325,676 42.37
Period-on-period June 30, December 31, Increase/Decrease Scale indicators (RMB’000) 2016 2015 (%) Total assets 1,181,634,463 1,031,650,386 14.54 Total loans and advances to customers 410,622,493 345,422,861 18.88 Total liabilities 1,118,507,879 981,993,322 13.90 Customer deposits 644,554,993 516,026,296 24.91 Shareholders’ equity 63,126,584 49,657,064 27.13
Period-on-period January to January to Increase/Decrease Per share (RMB) June 2016 June 2015 (%) Basic earnings per share 0.29 0.29 Flat Diluted earnings per share 0.29 0.29 Flat Net assets per share at the end of the period 3.51 3.11 12.86
January to January to January to Period-on-period Profitability indicators (%) June 2016 December 2015 June 2015 Increase/Decrease Return on average total assets 0.86* 0.83 0.86* Flat Return on average equity 16.88* 17.03 17.13* Decrease by 0.25 percentage point Net interest margin 2.10* 2.31 2.45* Decrease by 0.35 percentage point Net interest spread 1.91* 2.12 2.24* Decrease by 0.33 percentage point Proportion of net non-interest 25.07 18.08 13.57 Increase by 11.50 percentage points income Cost-to-income ratio (1) 25.29 27.66 24.62 Increase by 0.67 percentage point
INTERIM REPORT 2016 5 Financial Summary
June 30, December 31, June 30, Period-on-period Asset quality indicators (%) 2016 2015 2015 Increase/Decrease Non-performing loan ratio(2) 1.33 1.23 1.09 Increase by 0.10 percentage point Allowance to non-performing loans(3) 229.27 240.83 241.39 Decrease by 11.56 percentage points Allowance to total loans(4) 3.06 2.95 2.63 Increase by 0.11 percentage point
June 30, December 31, June 30, Period-on-period Capital adequacy indicators (%) 2016 2015 2015 Increase/Decrease Core tier-one capital adequacy ratio 10.16 9.35 9.42 Increase by 0.81 percentage point Tier-one capital adequacy ratio 10.16 9.35 9.42 Increase by 0.81 percentage point Capital adequacy ratio 11.72 11.04 11.07 Increase by 0.68 percentage point
Notes: * represents an annualized ratio. (1) Operating expenses (excluding business tax and surcharges) divided by operating income. (2) Balance of non-performing loans divided by total loans and advances to customers. (3) Balance of allowance for impairment losses on loans divided by balance of non-performing loans. (4) Balance of allowance for impairment losses on loans divided by total loans and advances to customers.
6 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(I) Development Strategies
The vision of “two most”
Our vision is to become the most competitive nationwide joint-stock commercial bank and Zhejiang’s most important financial platform.
The term “the most competitive” means the possession of distinct competitive advantages on the ability for innovation, risk control, service provision in the market, value creation in our services provided nationwide and globally, while “most important financial platform” refers to the representative financial group in Zhejiang with comprehensive functions, leading scale, outstanding results and sound reputation.
Full-asset class operation strategy
Full-asset class operation strategy is a systematic operation strategy that covers management and coordination of front, middle and back office and enables the Company to actively adapt to the market environment of high uncertainty and rapid changes, formulate an agile operation system with a clear direction, flexible mechanism, diversified tactics and various instruments. Such strategy is comprised of three parts, namely business expansion, internal management and strategic direction:
With respect to business expansion, the Company will continuously explore source of customers in serving the whole economy and undergo changes according to the actual changes from the needs of corporate customers, personal customers, small and micro customers and inter-bank customers. The Company will also strengthen synergy of business lines and cross-selling and timely and effectively meet customers’ changing and diversified needs through product mix and product innovation.
With respect to internal management, the Company will step up construction of its institutions and channels, enhance innovation of products and business models that are market-oriented and customer-experience driven, establish credit assets, trading assets, investment assets and inter-bank assets that match market demand and customer needs, whereby the Company’s liability operation capability can be driven by its asset operation capability. Therefore, the Company can transform from an asset holding bank to an asset management and trading bank and continuously innovate full-asset and liability management system and optimize comprehensive risk management system.
Strategic direction refers to formation of differentiated competitive advantages, exploration of diversified sources of profit, effective balance of impact of the economy, market or business fluctuation on the Company’s asset size and profitability, so as to achieve a growth higher than our peers and accomplish the general objective of “two most”. Differentiated competitive advantages can be reflected in the combination performance of our business and products in different development stages and the adjustment to the importance of business according to changes of market and customer demands.
INTERIM REPORT 2016 7 Management Discussion and Analysis
(II) Analysis of Overall Operating Performance
Rapid increase of business scale
As at the end of the reporting period, total assets of the Company amounted to RMB1,181.634 billion, representing an increase of RMB149.984 billion or 14.54% as compared to that at the beginning of this year, of which total loans and advances to customers amounted to RMB410.622 billion, representing an increase of RMB65.200 billion or 18.88% as compared to that at the beginning of this year, and total liabilities amounted to RMB1,118.508 billion, representing an increase of RMB136.515 billion or 13.90% as compared to that at the beginning of this year, of which customer deposits amounted to RMB644.555 billion, representing an increase of RMB128.529 billion or 24.91% as compared to that at the beginning of this year.
Significant improvement on economic benefits
During the reporting period, operating income of the Company amounted to RMB15.964 billion, representing an increase of RMB5.431 billion or 51.56% on a year-on-year basis, of which net non-interest income amounted to RMB4.003 billion, representing an increase of 179.93% on a year-on-year basis, and the proportion of net non-interest income increased by 11.50 percentage points on a year-on-year basis; total pre-provision profit amounted to RMB11.375 billion, representing an increase of RMB4.041 billion or 55.09% on a year-on-year basis; and net profit amounted to RMB4.735 billion, representing an increase of RMB1.409 billion or 42.37% on a year-on-year basis.
Maintaining sound asset quality
As at the end of the reporting period, the balance of non-performing loans of the Company amounted to RMB5.476 billion, representing an increase of RMB1.243 billion as compared to that at the beginning of this year; non-performing loan ratio was 1.33%, representing an increase of 0.1 percentage points as compared to that at the beginning of this year; allowance to non-performing loans at the end of the period was 229.27%, representing a decrease of 11.56 percentage points as compared to that at the beginning of this year; the allowance to total loan ratio was 3.06%, representing an increase of 0.11 percentage points as compared to that at the beginning of this year.
Increase in capital adequacy ratio
As at the end of the reporting period, capital adequacy ratio of the Company amounted to 11.72%, representing an increase of 0.68 percentage points as compared to that at the beginning of this year; tier-one capital adequacy ratio amounted to 10.16%, representing an increase of 0.81 percentage points as compared to that at the beginning of this year; and core tier-one capital adequacy ratio amounted to 10.16%.
8 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(III) Analysis of Financial Statements
1. Analysis of income statement
In the first half of 2016, under the guidance of the vision of “two most”, the Company further promoted the full-asset class operation strategy and better responded to the economic structure adjustment and rapid change of the market. In the first half of this year, the Company achieved a net profit of RMB4.735 billion, increasing by 42.37% compared with the same period last year; the annualized average return on total assets was 0.86% and the annualized average return on equity was 16.88%. Operating income was RMB15.964 billion, increasing by 51.56%, including, among others, net interest income of RMB11.962 billion, increasing by 31.40%; net non-interest income of RMB4.003 billion, increasing by 179.93%. Operating expense was RMB4.589 billion, increasing by 43.45%; cost-income ratio fell to 25.29%. Provision for impairment loss of assets was RMB5.129 billion, increasing by 75.29%. The income tax expense was RMB1.511 billion, increasing by 39.58%.
Changes of the main items in the income statement
In thousands of RMB, except percentages
Amount of January to January to increase or Item June 2016 June 2015 decrease Growth rate (%) Net interest income 11,961,836 9,103,705 2,858,131 31.40 Net non-interest income 4,002,539 1,429,829 2,572,710 179.93 Operating income 15,964,375 10,533,534 5,430,841 51.56 Less: operating expense 4,589,093 3,199,004 1,390,089 43.45 Less: impairment loss of assets 5,129,298 2,926,226 2,203,072 75.29 Profit before tax 6,245,984 4,408,304 1,837,680 41.69 Less: income tax expenses 1,511,162 1,082,628 428,534 39.58 Net profit attributable to the shareholders of the Company 4,734,822 3,325,676 1,409,146 42.37
(1) Net interest income
In the first half of 2016, net interest income was RMB11.962 billion, representing an increase of RMB2.858 billion or 31.40% as compared to the same period of last year, accounting for 74.93% of operating income. Interest income was RMB26.663 billion, representing an increase of RMB5.609 billion or 26.64%; and interest expense was RMB14.702 billion, representing an increase of RMB2.751 billion or 23.02%. Net interest spread and net interest margin were 1.91% and 2.10%, respectively, representing a decrease of 33 bps and 35 bps as compared to the same period of last year, respectively.
INTERIM REPORT 2016 9 Management Discussion and Analysis
Average yields on interest-earning assets and average interest rate of interest-bearing liabilities
In thousands of RMB, except percentages
January to June 2016 January to June 2015
Average Interest Average Average Interest Average Item balance income yield (%) balance income yield (%) Interest-earning assets Loans and advances to customers 411,433,408 10,223,271 5.00 282,165,709 9,006,779 6.44 Financial investments(1) 565,335,341 14,363,494 5.11 300,251,343 8,703,588 5.85 Due from banks and other financial institutions(2) 67,641,267 1,105,632 3.29 87,064,505 2,640,925 6.12 Balances with central bank(3) 89,373,626 686,631 1.54 73,277,506 560,144 1.54 Financial assets at fair value through profit or loss 13,440,226 284,441 4.26 5,896,079 142,977 4.89 Total interest-earning assets 1,147,223,868 26,663,469 4.67 748,655,142 21,054,413 5.67
January to June 2016 January to June 2015
Average Interest Average Average Interest Average Item balance expense cost (%) balance expense cost (%) Interest-bearing liabilities Customer deposits 572,420,385 6,197,698 2.18 399,701,448 5,113,709 2.58 Due to banks and other financial institutions(4) 406,556,380 6,782,027 3.35 242,789,473 5,375,461 4.46 Debt securities issued(5) 89,609,952 1,721,908 3.86 60,035,925 1,461,538 4.91 Total interest-bearing liabilities 1,068,586,717 14,701,633 2.77 702,526,846 11,950,708 3.43
Net interest income 11,961,836 9,103,705 Net interest spread (%) 1.91 2.24 Net interest margin (%) 2.10 2.45
Notes: (1) Financial investments include available-for-sale financial assets, held-to-maturity investments and debt instruments classified as receivables. (2) Due from banks and other financial institutions include financial assets purchased under resale agreements. (3) Balances with central bank include mandatory reserve of deposits, surplus reserve of deposits and foreign exchange reserve of deposits. (4) Due to banks and other financial institutions include financial assets sold under repurchase agreements. (5) Debt securities issued include issued interbank certificates of deposits, financial bond and subordinated bond.
10 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
Analysis of changes in interest income and interest expense
In thousands of RMB
Comparison between January to June 2016 and January to June 2015
Factors for increase (decrease) Net increase Item Volume(1) Interest rate(2) (decrease)(3) Interest-earning assets Loans and advances to customers 4,154,564 (2,938,072) 1,216,492 Financial investments 7,723,953 (2,064,047) 5,659,906 Due from banks and other financial institutions (586,102) (949,191) (1,535,293) Balances with central bank 124,943 1,544 126,487 Financial assets at fair value through profit or loss 183,730 (42,266) 141,464 Changes in interest income 11,601,088 (5,992,032) 5,609,056
Interest-bearing liabilities Customer deposits 2,226,902 (1,142,913) 1,083,989 Due to banks and other financial institutions 3,644,653 (2,238,087) 1,406,566 Debt securities issued 724,731 (464,361) 260,370 Changes in interest expense 6,596,286 (3,845,361) 2,750,925 Changes in net interest income 5,004,802 (2,146,671) 2,858,131
Notes: (1) Change in volume represents the average balance for the year minus the average balance for the previous year, multiplied by the average yield or average cost for the previous year. (2) Change in interest rate represents the average yield or average cost for the year minus the average yield or average cost for the previous year, multiplied by the average balance for the year. (3) Net increase or decrease represents interest income (expense) for the year minus interest income (expense) for the previous year.
INTERIM REPORT 2016 11 Management Discussion and Analysis
(2) Interest income
Interest income from loans and advances to customers
Interest income from loans and advances to customers was RMB10.223 billion, representing an increase of RMB1.216 billion or 13.51% as compared to the same period of last year, mainly due to an increase of RMB129.268 billion in average balance of loans and advances to customers. The decline in the average loan yield was mainly due to the lower interest rates of new loans and repriced existing loans as compared to the same period of last year arising from multiple RMB benchmark loan interest rate cut by the People’s Bank of China in 2015.
Analysis of the average yield on loans and advances to customers
In thousands of RMB, except percentages
January to June 2016 January to June 2015
Average Interest Average Average Interest Average Item balance income yield (%) balance income yield (%) Corporate loans and advances(1) 345,106,403 8,112,102 4.73 228,059,534 7,087,610 6.27 Personal loans and advances 66,327,005 2,111,169 6.40 54,106,175 1,919,169 7.15 Total loans and advances to customers 411,433,408 10,223,271 5.00 282,165,709 9,006,779 6.44
Note: (1) including discounted bills.
Interest income from financial investments
Interest income from financial investments was RMB14.363 billion, representing an increase of RMB5.660 billion or 65.03% as compared to the same period of last year, mainly because we capitalized on the market interest rate trend change, optimized our assets structure in accordance with our demand for assets management and moderately increased our bonds and interbank investments, and increased asset management plans and trust plans sponsored by other financial institutions.
Interest income from banks and other financial institutions
Interest income from banks and other financial institutions was RMB1.106 billion, representing a decrease of RMB1.535 billion or 58.13% as compared to the same period of last year, primarily because the interest rates and the scale of the amounts due from banks and other financial institutions decreased.
12 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
Interest income from balances with central bank
Interest income from balances with central bank amounted to RMB687 million, representing an increase of RMB126 million or 22.58% as compared to the same period of last year, primarily due to the increase in customer deposits which led to an increase in the mandatory reserve deposits.
Interest income from financial assets at fair value through profit or loss
Interest income from financial assets at fair value through profit or loss amounted to RMB284 million, representing an increase of RMB141 million or 98.94% as compared to the same period of last year, primarily due to the increased average balance of financial assets at fair value through profit or loss.
(3) Interest expense
Interest expense on deposits
Interest expense on deposits amounted to RMB6.198 billion, representing an increase of RMB1.084 billion or 21.20% as compared to the same period of last year, accounting for 42.16% of the total interest expenses. Such increase was primarily due to the increase of RMB172.719 billion in the average balance of deposits.
Interest expense on customer deposits
In thousands of RMB, except percentages
January to June 2016 January to June 2015
Average Interest Average Average Interest Average Item balance expense cost (%) balance expense cost (%) Corporate deposits and other deposits(1) Time 380,255,517 5,429,413 2.87 259,917,441 4,393,701 3.41 Demand 172,433,607 567,916 0.66 118,918,667 437,819 0.74 Subtotal 552,689,124 5,997,329 2.18 378,836,108 4,831,520 2.57 Personal deposits Time 15,161,955 192,315 2.55 17,067,801 274,245 3.24 Demand 4,569,306 8,054 0.35 3,797,539 7,944 0.42 Subtotal 19,731,261 200,369 2.04 20,865,340 282,189 2.73 Total 572,420,385 6,197,698 2.18 399,701,448 5,113,709 2.58
Note: (1) Other deposits include remittance payables, temporary deposits, outward remittance and structured deposits, etc.
INTERIM REPORT 2016 13 Management Discussion and Analysis
Interest expense on amounts due to banks and other financial institutions
Interest expense on amounts due to banks and other financial institutions amounted to RMB6.782 billion, representing an increase of RMB1.407 billion or 26.17% as compared to the same period of last year, primarily due to the increase of RMB163.767 billion in average balance.
Debt securities issued
Interest expense on debt securities issued amounted to RMB1.722 billion, representing an increase of RMB260 million or 17.81% as compared to the same period of last year, primarily due to an increase in the issuance of interbank certificates of deposits and bonds including financial bonds for small and micro enterprises.
(4) Net non-interest income
Net non-interest income in the first half of 2016 amounted to RMB4.003 billion, representing an increase of RMB2.573 billion or 179.93% on a year-on-year basis. Specifically, the net fee and commission income was RMB3.207 billion, representing an increase of 123.24%, while other net non-interest income was RMB0.796 billion.
Net fee and commission income
In thousands of RMB, except percentages
Amount of January to January to increase or Growth Item June 2016 June 2015 decrease rate (%) Wealth management business 2,260,518 348,845 1,911,673 548.00 Credit commitment 283,331 246,044 37,287 15.15 Underwriting service 249,393 151,452 97,941 64.67 Agency service 211,410 566,572 (355,162) (62.69) Custodian business 71,391 66,366 5,025 7.57 Settlement business 62,153 33,810 28,343 83.83 Others 158,808 67,760 91,048 134.37 Fee and commission income 3,297,004 1,480,849 1,816,155 122.64 Less: Fee and commission expense 90,351 44,420 45,931 103.40 Net fee and commission income 3,206,653 1,436,429 1,770,224 123.24
14 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
Fee income from wealth management business was RMB2.261 billion, representing an increase of RMB1.912 billion or 548.00% as compared to the same period of last year, primarily due to the increased scale of wealth management assets.
Income from credit commitment business was RMB283 million, representing an increase of RMB37 million or 15.15% as compared to the same period of last year, primarily due to the increased fee income of our off-balance sheet business.
Fee income from underwriting service was RMB249 million, representing an increase of RMB98 million or 64.67% as compared to the same period of last year, primarily due to the increased scale of the bond underwriting service.
Fee income from agency service was RMB211 million, representing a decrease of RMB355 million as compared to the same period of last year, primarily because the Company proactively adjusted our business mix according to the changing market environment.
Fee income from custodian service was RMB71 million, representing an increase of RMB5 million or 7.57% as compared to the same period of last year, primarily due to the increased scale of the custodian service.
Fee income from settlement business was RMB62 million, representing an increase of RMB28 million or 83.83% as compared to the same period of last year, primarily due to the growth of our settlement and clearing business.
Other net non-interest income
In thousands of RMB, except percentages
Amount of January to January to increase or Growth Item June 2016 June 2015 decrease rate (%) Net trading gains/(losses) – Held-for-trading financial assets (66,925) 47,198 (114,123) (241.80) – Derivative financial instruments 102,100 (204,389) 306,489 – – Exchange gains 157,275 (89,312) 246,587 – Net gains/(losses) on financial investments 584,230 224,850 359,380 159.83 Other operating income 19,206 15,053 4,153 27.59 Total 795,886 (6,600) 802,486 –
Other net non-interest income was RMB796 million, primarily due to gains on disposal of available-for-sale financial instruments, fair value changes of derivative financial instruments and the increase of exchange gains or losses.
INTERIM REPORT 2016 15 Management Discussion and Analysis
(5) Operating expenses
Operating expenses
In thousands of RMB, except percentages
Amount of January to January to increase or Growth Item June 2016 June 2015 decrease rate (%) Staff costs 2,819,088 1,571,720 1,247,368 79.36 General and administrative expenses 885,979 737,781 148,198 20.09 Business tax and surcharges 552,117 605,827 (53,710) (8.87) Operating rental expenses 200,593 164,294 36,299 22.09 Depreciation and amortization 113,885 101,951 11,934 11.71 Others 17,431 17,431 – – Total 4,589,093 3,199,004 1,390,089 43.45
Operating expenses amounted to RMB4.589 billion, representing an increase of 43.45%, primarily due to our business expansion and the increased number of outlets and employees.
(6) Impairment losses on assets
Impairment losses on assets
In thousands of RMB, except percentages
Amount of January to January to increase or Growth Item June 2016 June 2015 decrease rate (%) Loans and advances to customers – Collectively assessed 2,132,032 1,648,928 483,104 29.30 – Individually assessed 1,534,941 890,141 644,800 72.44 Debt instruments classified as receivables 1,462,387 382,808 1,079,579 282.02 Others (62) 4,349 (4,411) (101.43) Total 5,129,298 2,926,226 2,203,072 75.29
The impairment losses on assets were RMB5.129 billion, representing an increase of 75.29%, primarily because (1) our loan balances continued to increase; (2) considering a number of factors including the slowdown of domestic economic growth, we prudently increased the provision along with the increase in our non-performing loans to further enhance our risk resistance capability; (3) we disposed of non-performing loans in a timely and efficient manner, and the amount of the non-performing loans that were written off and transferred out increased accordingly; and (4) we increased the provision for the impairment losses on debt instruments classified as receivables.
16 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(7) Income tax expenses
The income tax expenses were RMB1.511 billion, representing a year-on-year increase of RMB429 million or 39.58%, and the effective tax rate was 24.19%. For the reconciliation statement of the income tax expenses calculated at statutory tax rate and the actual income tax expenses, please see “Notes to the Financial Statements – 12 Income Tax Expense”.
(8) Segment information
Segment operating results by business line
In thousands of RMB, except percentages
January to June 2016 January to June 2015
Proportion Proportion Item Amount (%) Amount (%) Corporate banking 7,793,429 48.82 6,419,555 60.94 Retail banking 1,335,028 8.36 1,038,478 9.86 Treasury business 6,818,357 42.71 3,061,338 29.06 Others 17,561 0.11 14,163 0.13 Total 15,964,375 100.00 10,533,534 100.00
Segment operating results by geographic region
In thousands of RMB, except percentages
January to June 2016 January to June 2015
Proportion Proportion Item Amount (%) Amount (%) Eastern China 11,007,636 68.95 6,660,102 63.23 Northern China 2,325,562 14.57 1,973,291 18.73 Southern China 699,398 4.38 238,266 2.26 Western China 1,931,779 12.10 1,661,875 15.78 Total 15,964,375 100.00 10,533,534 100.00
INTERIM REPORT 2016 17 Management Discussion and Analysis
2. Balance Sheet Analysis
In the first half of 2016, under the “new normal” economy, the Bank actively complied with rapidly changing market needs, strengthened our capability to boost capital, deeply promoted our full-asset class operation strategy, actively adjusted our business structure, increased the allocation for strategic customers and strategic assets, and optimized and adjusted the regional development layout. Our operating capacity was further improved, structure of assets and liabilities was continuously optimized, liquidity and market risk management were further strengthened, and resource allocation efficiency of assets and liabilities was steadily improved.
(1) Assets
At the end of June 2016, total assets amounted to RMB1,181.634 billion, representing an increase of RMB149.984 billion or 14.54% as compared to that at the end of last year, including an increase in total loans and advances to customers of RMB65.2 billion or 18.88% and an increase in investments of RMB100.465 billion or 19.29%. In terms of the structure, net loans and advances accounted for 33.69% of total assets, investments accounted for 52.58%, and cash and balances with central bank accounted for 8.74%.
Assets utilization
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Item Amount Proportion (%) Amount Proportion (%) Total loans and advances to customers 410,622,493 – 345,422,861 – Less: allowance for impairment losses on loans (12,554,964) – (10,193,921) – Net loans and advances 398,067,529 33.69 335,228,940 32.49 Investments(1) 621,313,339 52.58 520,848,463 50.49 Cash and balances with central bank 103,270,087 8.74 87,649,741 8.50 Precious metal – – 1,848 0.00 Due from banks and other financial institutions 45,978,813 3.89 76,607,447 7.42 Others 13,004,695 1.10 11,313,947 1.10 Total assets 1,181,634,463 100.00 1,031,650,386 100.00
Note: (1) It includes financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity investments and debt instruments classified as receivables.
18 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
Loans
In the first half of 2016, the Company, according to changes in the macroeconomic environment and financial supervision requirements and by combining the optimization of credit increment and stock structure adjustment, supported the development of real economy, continued to deepen financial services to small and micro enterprises, increased efforts on innovation, and attached importance to credit structure adjustment and risk prevention and control simultaneously. As a result, loans increased steadily and evenly, with a reasonable investment direction and structure. At the end of June 2016, all the loans amounted to RMB410.622 billion, representing an increase of RMB65.200 billion or 18.88% as compared to that at the end of last year.
Loan structure by business type
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Proportion Proportion Item Amount (%) Amount (%) Corporate loans 292,583,089 71.25 242,484,549 70.20 Discounted bills 45,415,455 11.06 39,827,199 11.53 Personal loans 72,623,949 17.69 63,111,113 18.27
Total 410,622,493 100.00 345,422,861 100.00
Corporate loans
Driven by the full-asset class operation strategy in a comprehensive manner, the Company can meet customers’ financing needs via diversified products, and promoted the optimization of corporate loan structure while taking into account the adjustment in total amount and structure of its loans. As of the end of June 2016, total corporate loans amounted to RMB292.583 billion, representing an increase of 20.66% as compared to that at the end of last year.
Discounted bills
The Company flexibly regulated and controlled its discounted bills business of low risk and low consumption of capital according to the progress of loan extension, and took various measures including optimization of structure and acceleration of turnover to improve comprehensive returns on bill assets. As of the end of June 2016, total discounted bills amounted to RMB45.415 billion, representing an increase of 14.03% as compared to that at the end of last year.
Personal loans
The Company optimized asset structure and expanded residential mortgage loans, personal business loans and credit card loans. As of the end of June 2016, total personal loans amounted to RMB72.624 billion, representing an increase of 15.07% as compared to that at the end of last year.
INTERIM REPORT 2016 19 Management Discussion and Analysis
Investments
In the first half of 2016, the Company accurately seized favorable opportunities in the financial market, flexibly arranged progress and key points in investments, optimized investment portfolio and structure and, on the basis of ensuring liquidity and risk control, moderately increased our investments and constantly improved profitability level of investment portfolios. At the end of June 2016, total investments amounted to RMB621.313 billion, representing an increase of 19.29% as compared to that at the end of last year.
Investment composition by purpose of holding
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Item Amount Proportion (%) Amount Proportion (%) Financial assets at fair value through profit or loss 13,890,252 2.24 10,795,291 2.07 Available-for-sale financial assets 60,298,720 9.71 49,117,403 9.43 Held-to-maturity investments 37,252,071 6.00 29,042,163 5.58 Debt instruments classified as receivables 509,872,296 82.06 431,893,606 82.92
Total 621,313,339 100.00 520,848,463 100.00
As of the end of June 2016, financial assets at fair value through profit or loss of the Company amounted to RMB13.890 billion, representing an increase of 28.67%; available-for-sale financial assets amounted to RMB60.299 billion, representing an increase of 22.76%; held-to-maturity investments amounted to RMB37.252 billion, representing an increase of 28.27%; and debt instruments classified as receivables amounted to RMB509.872 billion, representing an increase of 18.06%.
20 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(2) Liabilities
At the end of June 2016, total liabilities of the Company amounted to RMB1,118.508 billion, representing an increase of RMB136.515 billion or 13.90% as compared to that at the end of last year.
Liabilities
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Item Amount Proportion (%) Amount Proportion (%) Customer deposits 644,554,993 57.63 516,026,296 52.55 Due to banks and other financial institutions 334,622,162 29.92 354,657,357 36.12 Financial liabilities at fair value through profit or loss 12,136,371 1.09 500,020 0.05 Debt securities issued 98,561,446 8.81 89,936,036 9.16 Others 28,632,907 2.56 20,873,613 2.13
Total liabilities 1,118,507,879 100.00 981,993,322 100.00
Customer deposit
The Company attached importance to deposit organization and management, actively responded to the further advancement of liberalization of interest rates, increasingly fierce competition among peers, rapid development of Internet financial services and other external situations, took full advantage of the comprehensive advantages of financial services, improved the differentiated pricing mechanism for deposit interest rates, raised the debt stability, strengthened the management of financing channels, improved the diversification of financing sources and further optimized financing structures.
INTERIM REPORT 2016 21 Management Discussion and Analysis
Structure of our customer deposits by business type
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Item Amount Proportion (%) Amount Proportion (%) Corporate deposits Demand 241,366,700 37.45 179,985,599 34.88 Time 373,324,068 57.92 310,115,626 60.10 Sub-total 614,690,768 95.37 490,101,225 94.98
Individual deposits Demand 6,755,983 1.05 6,381,855 1.24 Time 17,211,885 2.67 15,298,848 2.96 Sub-total 23,967,868 3.72 21,680,703 4.20 Other deposits 5,896,357 0.91 4,244,368 0.82 Total 644,554,993 100.00 516,026,296 100.00
At the end of June 2016, balance of customer deposits amounted to RMB644.555 billion, representing an increase of RMB128.529 billion or 24.91% as compared to that at the end of last year. With respect to customer structure, corporate deposits increased by 124.590 billion or 25.42%; and individual deposits increased by RMB2.287 billion or 10.55%. With respect to term structures, time deposits increased by RMB65.121 billion or 20.01%; and demand deposits increased by RMB61.755 billion or 33.14%.
(3) Shareholder’s equity
At the end of June 2016, the shareholder’s equity amounted to RMB63.127 billion in total, representing an increase of RMB13.470 billion or 27.13% as compared to that at the end of last year. Please see “Financial Statements – Condensed Statements of Changes in Equity”.
3. Analysis on the statements of cash flows
The net cash inflow from operating activities was RMB78.467 billion. Among others, the net cash outflow of operating assets decreased by RMB13.469 billion on a year-on-year basis, the net cash inflow of operating liabilities decreased by RMB56.616 billion, primarily due to the decrease in due to banks and other financial institutions.
The net cash outflow from investing activities was RMB84.414 billion. Among others, RMB435.969 billion of cash flowed in, representing an increase of RMB213.888 billion on a year-on-year basis; RMB520.382 billion of cash flowed out, representing an increase of RMB140.865 billion on a year-on-year basis. The increase in net cash outflow from investing activities was primarily due to the significant increase in financial investments.
The net cash inflow from financing activities was RMB18.552 billion. Among others, RMB97.658 billion of cash flowed in, primarily due to the debt securities issued and interbank certificates of deposit as well the proceeds from IPO on Hong Kong Stock Exchange in March 2016; RMB79.106 billion of cash flowed out, primarily due to the repayment of debt.
22 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(IV) Loan Quality Analysis
1. Loan distribution by the five-category classification
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Item Amount Percentage (%) Amount Percentage (%) Pass 396,917,968 96.66 334,753,545 96.91 Special mention 8,228,463 2.00 6,436,407 1.86 Non-performing 5,476,062 1.33 4,232,909 1.23 Substandard 2,529,811 0.62 2,076,657 0.60 Doubtful 2,631,674 0.64 1,903,192 0.55 Loss 314,577 0.08 253,060 0.07 Total 410,622,493 100.00 345,422,861 100.00
The loan quality was kept at an excellent level, but due to the slowdown of the PRC economic growth and a deterioration of the repayment ability of certain clients, our Company saw a certain increase in loans classified as non-performing and special mention. At the end of June 2016, according to the five-category classification, the normal loans amounted to RMB396.918 billion, representing an increase of RMB62.164 billion as compared to that at the end of last year, accounting for 96.66% of all the loans. Loans classified as special mention were RMB8.228 billion, representing an increase of RMB1.792 billion, accounting for 2%. The non-performing loans were RMB5.476 billion, representing an increase of RMB1.243 billion as compared to that at the end of last year with a non-performing loan ratio of 1.33%, representing an increase of 0.1 percentage point as compared to that at the end of last year.
INTERIM REPORT 2016 23 Management Discussion and Analysis
2. Distribution of loans and non-performing loans by business type
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Non- Non- Non- performing Non- performing Percentage performing loan ratio Percentage performing loan ratio Item Loans (%) loans (%) Loans (%) loans (%) Corporate loans 292,583,089 71.25 4,585,800 1.57 242,484,549 70.2 3,724,275 1.54 Personal loans 72,623,949 17.69 795,262 1.10 63,111,113 18.27 508,634 0.81 Discounted bills 45,415,455 11.06 95,000 0.21 39,827,199 11.53 – –
Total 410,622,493 100.00 5,476,062 1.33 345,422,861 100.00 4,232,909 1.23
Our non-performing loans amounted to RMB4.586 billion, representing an increase of RMB862 million as compared to that at the end of last year, with a non-performing loan ratio of 1.57%, representing an increase of 0.03 percentage points as compared to that at the end of last year, primarily due to the deterioration of the debt repayment capability of certain clients resulting from the slowdown of economic growth and structural adjustments. The personal non-performing loans were RMB795 million, representing an increase of RMB287 million as compared to that at the end of last year, with a non-performing loan ratio of 1.10%, primarily due to the deterioration of loan repayment capability of certain personal business loan clients caused by the macro-economic environment.
24 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
3. Distribution of loans and non-performing loans by industry
In thousands RMB, except percentages
June 30, 2016 December 31, 2015
Non- Non- Non- Non- Percentage performing performing Percentage performing performing Item Loans (%) loans loan ratio (%) Loans (%) loans loan ratio (%) For Corporate 292,583,089 71.25 4,585,800 1.57 242,484,549 70.2 3,724,275 1.54 Manufacturing 59,516,487 14.49 2,664,272 4.48 50,795,800 14.71 2,046,700 4.03 Wholesale and retail trade 52,890,851 12.88 1,044,149 1.97 36,978,096 10.71 890,671 2.41 Leasing and commercial services 49,974,779 12.17 22,617 0.05 37,390,404 10.83 39,317 0.11 Real estate 43,580,067 10.61 380,164 0.87 39,878,330 11.55 278,309 0.70 Construction 24,118,198 5.87 253,389 1.05 21,415,271 6.20 329,109 1.54 Administration of water conservancy, environment and public facilities 21,727,853 5.29 – – 21,764,906 6.30 – – Transportation, storage and postal service 7,415,965 1.81 47,196 0.64 6,540,180 1.89 4,696 0.07 Finance 6,113,035 1.49 – – 5,931,548 1.72 – – Electricity, heat, gas and water production and supply 6,066,505 1.48 5,315 0.09 3,774,675 1.09 1,573 0.04 Mining 4,672,682 1.14 33,794 0.72 3,985,721 1.15 63,231 1.59 Accommodation and catering 3,296,989 0.80 74,397 2.26 3,856,737 1.12 32,402 0.84 Others(1) 13,209,678 3.22 60,507 0.46 10,172,881 2.95 38,268 0.38 Personal loans 72,623,949 17.69 795,262 1.10 63,111,113 18.27 508,634 0.81 Discounted bills 45,415,455 11.06 95,000 0.21 39,827,199 11.53 – –
Total 410,622,493 100.00 5,476,062 1.33 345,422,861 100.00 4,232,909 1.23
Note: (1) Others include various industries such as public administration, social security and social organization; culture, sports and entertainment; information transmission, software and information technology service; agriculture, forestry, animal husbandry and fishery; household services, repair and other services; scientific research and technology services; education, sanitation and social work.
In the first half of 2016, our Company actively supported the development of the real economy and the national economic restructuring, with our loan segment structure further optimized. Newly-added non-performing loans in our Company mainly concentrated on manufacturing, wholesale and retail trade.
INTERIM REPORT 2016 25 Management Discussion and Analysis
4. Distribution of loans and non-performing loans by geographic regions
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Amount of Non- Amount of Non- non- performing non- performing Amount Percentage performing loan ratio Amount Percentage performing loan ratio Item of loans (%) loans (%) of loans (%) loans (%) Eastern China 225,732,592 54.97 3,806,951 1.69 200,043,980 57.91 3,139,352 1.57 Northern China 81,179,174 19.77 826,894 1.02 65,892,661 19.08 489,694 0.74 Western China 76,834,107 18.71 739,765 0.96 54,167,679 15.68 557,552 1.03 Southern China 26,876,620 6.55 102,451 0.38 25,318,541 7.33 46,311 0.18 Total 410,622,493 100.00 5,476,062 1.33 345,422,861 100.00 4,232,909 1.23
Our Company has been continuously optimizing the regional distribution of loans, actively protecting ourselves from regional risks, and accelerating institutional layout to actively support the developmental demand of the regions where our new institutions are established. As at the end of the reporting period, our non-performing loans were mainly from Eastern China.
5. Distribution of loans and non-performing loans by security type
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Amount of Non- Amount of Non- non- performing non- performing Amount Percentage performing loan ratio Amount Percentage performing loan ratio Item of loans (%) loans (%) of loans (%) loans (%) Collateralized loans 161,051,322 39.22 2,751,482 1.71 149,906,362 43.4 2,225,853 1.48 Pledged loans 55,380,900 13.49 63,298 0.11 40,865,811 11.83 42,791 0.10 Guaranteed loans 108,728,688 26.48 2,460,842 2.26 90,575,061 26.22 1,872,904 2.07 Unsecured loans 40,046,128 9.75 105,440 0.26 24,248,428 7.02 91,361 0.38 Discounted bills 45,415,455 11.06 95,000 0.21 39,827,199 11.53 – – Total 410,622,493 100.00 5,476,062 1.33 345,422,861 100.00 4,232,909 1.23
As of the end of the reporting period, the collateralized loans amounted to RMB161.051 billion, representing an increase of RMB11.145 billion or 7.43% as compared to that at the end of last year; the pledged loans amounted to RMB55.381 billion, representing an increase of RMB14.515 billion or 35.52% as compared to that at the end of last year; the unsecured loans amounted to RMB40.046 billion, representing an increase of RMB15.798 billion or 65.15% as compared to that at the end of last year.
26 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
6. Ten largest borrowers
In thousands of RMB, except percentages
Percentages of total loans Top ten borrowers Industry Amount (%) A Wholesale and retail trade 2,179,505 0.53 B Wholesale and retail trade 2,078,210 0.51 C Financing 1,750,000 0.43 D Construction 1,730,000 0.42 E Manufacturing 1,728,012 0.42 F Leasing and commercial services 1,500,000 0.37 G Wholesale and retail trade 1,368,407 0.33 H Leasing and commercial services 1,100,000 0.27 I Real estate 1,100,000 0.27 J Wholesale and retail trade 1,097,790 0.27 Total 15,631,924 3.81
As of the end of the reporting period, the balance of loans to our largest single borrower was RMB2.180 billion, representing 2.98% of the Company’s net capital. The total loans to our top ten single borrowers amounted to RMB15.632 billion, representing 21.35% of the net capital and 3.81% of the total loans of the Company.
7. Overdue loans
In thousands of RMB, except percentages
June 30, 2016 December 31, 2015
Percentages Percentages of total loans of total loans Overdue period Amount (%) Amount (%) Overdue by 1 to 90 days 1,800,005 0.44 2,574,292 0.75 Overdue by 90 days to one year 3,592,322 0.87 2,675,510 0.77 Overdue by one year to three years 1,334,356 0.32 1,047,723 0.3 Overdue by more than three years 108,498 0.03 14,374 0 Total 6,835,181 1.66 6,311,899 1.83
The balance of overdue loans amounted to RMB6.835 billion, representing an increase of RMB0.523 billion as compared to that at the end of last year. Specifically, loans overdue by more than 90 days amounted to RMB5.035 billion, representing an increase of RMB1.298 billion as compared to that at the end of last year. Our Company adopted prudent classification criteria in respect of overdue loans. At the end of June 2016, the ratio of balance of non-performing loans to balance of loans overdue by more than 90 days was 1.09.
INTERIM REPORT 2016 27 Management Discussion and Analysis
8. Loans renegotiated
Loans and advances renegotiated amounted to RMB307 million, representing an increase of RMB229 million as compared to that at the end of last year. Specifically, loans and advances renegotiated overdue by more than three months were RMB56 million, representing an increase of RMB22 million as compared to that at the end of last year.
9. Movements in allowances for impairment losses on loans
In thousands of RMB
Collectively Individually Item assessed assessed Total Balance at the beginning of the period 8,340,569 1,853,352 10,193,921 Provision for the period 2,132,032 1,534,941 3,666,973 Unwinding of discount on allowance (34,309) (14,146) (48,455) Write-offs for the period (345,210) (142,077) (487,287) Transfer out for the period (178,762) (644,485) (823,247) Recoveries 24,711 25,540 50,251 Exchange differences 2,808 – 2,808 Balance at the end of the period 9,941,839 2,613,125 12,554,964
28 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(V) Capital Management
In the first half of 2016, the Company maintained a solid growth in profits and the Company replenished core tier-one capital of RMB11.42 billion through the listing on the Hong Kong stock market, which effectively enhanced the capital quality and capital strength. As of June 30, 2016, net capital base of the Company amounted to RMB73.228 billion, net tier-one capital amounted to RMB63.485 billion and net tier-two capital amounted to RMB9.743 billion.
In accordance with the Administrative Measures for the Capital of Commercial Banks (Trial) (《商業銀行資本 管理辦法（試行)》), the measurement range of the Company’s capital adequacy ratio covers credit risk, market risk and operational risk. Among them, credit risk-weighted assets were measured by using weight method, market risk-weighted assets were measured by using standardized approach, and operational risk-weighted assets were measured by using the basic indicator approach.
In the first half of 2016, the Company replenished and strengthened the capital constraint mechanism by properly utilizing the proceeds from listing, improved the risk-weighted asset allocation efficiency, as a result of which, capital adequacy ratio was improved. As of June 30, 2016, capital adequacy ratio of the Company was 11.72%, tier-one capital adequacy ratio was 10.16%, core tier-one capital adequacy ratio was 10.16%, and leverage ratio was 4.60%, all of which met regulatory requirements.
INTERIM REPORT 2016 29 Management Discussion and Analysis
Capital Adequacy Ratio
In thousands of RMB, except percentages
June 30, December 31, Item 2016 2015 Core tier-one capital 63,641,457 50,409,543 Paid-in capital 17,959,697 14,509,697 Part of capital reserves that can be included 20,642,023 13,408,971 Surplus reserves 2,775,091 2,070,023 General risk reserves 13,242,456 8,241,258 Undistributed profits 9,022,190 12,179,595 Core tier-one capital deductible items 156,883 160,826 Net of other intangible assets (excluding land use rights) after deduction of related deferred tax liabilities 156,883 160,826 Net core tier-one capital 63,484,574 50,248,717 Other tier-one capital – – Net tier-one capital 63,484,574 50,248,717 Tier-two capital 9,743,272 9,066,437 Tier-two capital instruments and premium that can be included 2,670,000 3,115,000 Excessive allowance for loan losses 7,073,272 5,951,437 Tier-two capital deductible items – – Net capital base 73,227,847 59,315,154 Risk-weighted assets 624,884,874 537,252,918 Core tier-one capital adequacy ratio (%) 10.16 9.35 Tier-one capital adequacy ratio (%) 10.16 9.35 Capital adequacy ratio (%) 11.72 11.04
Note: Capital Adequacy Ratio was calculated under the related provisions of the Administrative Measures for the Capital of Commercial Banks (Trial) issued by the CBRC on June 7, 2012, and credit risks were measured by using weight method, market risks were measured by using standardized approach, and operational risks were measured by using the basic indicator approach.
30 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
Leverage Ratio
In thousands of RMB, except percentages
June 30, December 31, Item 2016 2015 Tier-one capital 63,641,457 50,409,543 Tier-one capital deductible items 156,883 160,826 Net tier-one capital 63,484,574 50,248,717 Adjusted asset balance inside the balance sheet 1,177,519,190 982,553,658 Asset balance of derivative products 2,663,010 1,382,465 Asset balance of securities financing transactions 3,011,236 48,009,930 Adjusted asset balance outside the balance sheet 197,025,462 198,472,619 Adjusted asset balance inside and outside the balance sheet 1,380,218,898 1,230,418,671 Leverage ratio (%) 4.60 4.08
Note: Calculated under the related provisions of Administrative Measures for the Leverage Ratio of Commercial Banks (Revised) (《商業銀行槓桿率管理辦法（修訂)》) issued by the CBRC in 2015.
INTERIM REPORT 2016 31 Management Discussion and Analysis
(VI) Risk Management
1. Comprehensive risk management system
We have adopted a positive and solid risk management strategy, which focuses on the compatibility between our risk management and business operations and the effective and strategic risk management. We have established a comprehensive risk management system which is in line with the Company’s full-asset class operation strategy.
During the reporting period, the Company further advances the improvement of our comprehensive risk management system. On a basis of remaining relatively independent and effectively check and balance, we strengthen the integration and highly link between risk management and business operation, adhere to relative independence, professional management, effectiveness, quick response and gradually form a comprehensive risk management system which is beneficial for operation, risk management and innovation.
The Board is the highest decision-making body for the Company’s risk management, and the president of our head office, as authorized by the Board, manages the risks across the Bank and makes decisions on risk management-related matters. The senior management has established special committees including the risk management committee, asset and liability management committee, investment and transaction review committee, credit review committee and asset risk classification review committee. The risk management committee is mainly responsible for organizing, coordinating and managing various risks, including credit risk, market risk, liquidity risk, operational risk, compliance risk, reputational risk and strategic risk.
The risk management department at our head office is the general control department for comprehensive risk management and the lead executive department for credit risk management; the financial market risk management department at our head office is the leading executive department for market risk (excluding interest rate risk of banking book) management; the asset and liability management department at our head office is the leading executive department for interest rate risk of banking book, liquidity risk management; the internal control and compliance and legal department at our head office is the leading executive department for operational risk and compliance risk management; the executive office at our head office is the leading executive department for reputational risk management; the development and planning department at our head office is the leading executive department for strategic risk management.
32 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
The Company implements a relatively vertical risk management model by accrediting risk monitoring officer to important departments at out head office and each branch. The risk monitoring officer assists the president of the branch in organizing comprehensive risk management which focuses on managing and controlling various business risks that is significant, complex and difficult. The risk monitoring officer is directly response to our head office and is independent of branches reporting risk warning events to the head office, which keeps the independence of risk management.
The Company implements line risk management model which means to establish risk management centre in important business lines so as to improve the professional level and work efficiency of risk management.
2. Credit risk management
Credit risk refers to the risk of the Company suffering from losses due to the default of counterparties and debtors or a decline in their credit. The Company’s credit risk primarily relates to both on- and off-balance sheet businesses, including loans, inter-bank lending, bond investments, bill acceptances, letters of credit and letters of guarantee.
The objectives of our credit risk management are to control our credit risk within a reasonable range acceptable to us and maximize the comprehensive benefits across the Bank denominated in local currency and adjusted with respect to risks.
The Company’s credit risk management system consists of the head office president, head office senior management, risk management committee, branch and sub-branch presidents, branch and sub-branch management teams (risk monitoring officer (supervisor)), credit review committee (team), investment and transaction review committee (team), risk management department, business department, marketing department and audit department. As authorized by the Board, the head office president who is our chief decision maker with respect to credit risk is responsible for organizing the credit risk management of the Bank and the promotion of the strategies, policies and decisions of the Board of Directors. The president is also responsible for formulating and implementing our fundamental policies and systems for credit risk management.
The Company has formulated credit risk preferences and risk control index system to effectively identify, measure, monitor, control and report credit risk of on- and off-balance sheet businesses across the bank and established a scientific, effective and dynamic mechanism for credit risk management. The Company also enhances credit system construction, revises the administrative measures on unified granting credit for corporate clients, improves standardized credit approval procedures and position risk accountability mechanism and takes effective measures to prevent credit risks.
INTERIM REPORT 2016 33 Management Discussion and Analysis
The Company formulates fundamental policies for our credit management during the reporting period based on the changes to our operating environment and our internal operating and risk conditions. Such policies serve as instructions for the adjustments to certain aspects of our credit business, such as its industry structure, regional distribution, our customer composition and other important aspects to strengthen the management on credit business extension.
The Company continuously enhances the management on the loan risks of local governments’ financing platforms. The Company strictly complies with the various lending policies and regulatory requirements of the CBRC on the financing platforms of local governments, makes dynamic adjustments to the targets of credit granting, and further optimizes the lending structure of financing platforms to prevent the credit risks that may arise from governments’ financing platforms.
The Company continuously enhances the risk management on real estate loans. The Company engages in real estate credit business prudently, and adjusts our credit extension plans for the real estate industry in a timely manner; sets credit limits for the loans granting to the customers in the real estate industry and ensures that such limits are flexible and adjusted in a timely manner, as needed, and enhances our monitoring and management on the risks relating to existing loans.
The Company continuously enhances our risk management on the loans granted to the industries with excessive production capacity. The Company sets limits for the loans granting to the industries with “extremely excessive production capacity”, strictly restrains the proportion of the balance of the loans granted to the industries with high pollution and energy consumption. The Company strictly controls the loans granted to the industries with seriously excessive production capacity such as the steel, coal, shipping and electrolytic aluminum smelting industries.
The Company continuously enhances the management on the credit risks of small and micro enterprises. The Company actively explores a professionalized operating model, continuously improves our management system and further combs and standardizes the procedures and requirements for credit extension, to gradually cultivate a unique and standard credit extension model of the Company. The Company also strengthens our measures for risk mitigation, and strictly controls the overdue loan ratio and non-performing loans by ways of classification, tracking overdue loans and on-site and off-site monitoring.
The Company continuously enhances the risk management for personal loans. The Company actively builds our credit evaluation system for personal loans, develops and designs personal loan products with complete functions and strong risk resistance. The Company has also formulated the entry barriers for different groups of customers, controls the overall limits of personal loans, restrains loans with multiple borrowers as well as improves and optimizes governance mechanism of credit risk for personal loans. The Company has continuously enhanced the selection and management of guarantee, and improved our ability to mitigate credit risks. The Company has also enhanced our subsequent management such as post-loan monitoring, collection of overdue loans and disposal of non-performing loans, to ensure our asset quality at a satisfactory level.
34 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
The Company continuously enhances the risk management for our credit card business. The Company formulates risk management measures for our credit card business, further improves the credit card risk management system featuring prior-business risk prevention, on-going risk monitoring during the process and post business management, better completes the design and operation of the process for card issuance business, determination and control of our overall business risk tolerance, as well as the risk monitoring, assessment, control, mitigation and recovery during and after the grant of a loan.
The Company continuously enhances the risk management for treasury business. We manage the risks in our bond investment business which is within our treasury business through access criteria, credit limit control and credit extension risk assessment; the bond issuers are included in our unified credit extension management system. We have revised the unified credit operational rules related to financial institutions and improved the procedures for inter-bank credit extension within treasury business.
3. Market risk management
Market risk refers to the adverse effect those normal or specific changes in interest rates, foreign exchange rates, commodity prices or stock prices may have on products involving interest rates, currencies and stocks. The market risk which we are exposed to includes the risk that the fair values of financial instruments or future cash flows held by us may fluctuate as a result of market price volatility.
The objectives of our market risk management are to manage and monitor our market risk to maintain the potential losses to be within a reasonable range acceptable and maximize the benefits as adjusted with respect to risks.
The Company has established market risk management system pursuant to the relevant measures and guidelines of CBRC, formulated market risk management policies and procedures applicable to our business nature, scale, complexity and risk features, and maintained such policies and procedures in accordance with our overall business development strategy, management capabilities and capital strength. As authorized by our Board, the head office president is our chief decision maker with respect to market risk. The head office president, relevant management committees, asset and liability management department, risk management department, financial market risk management department, financial market department, other departments and branches and sub-branches jointly comprise the Company’s market risk management system at the operation level. The Company mainly takes the measures such as position setting management, credit line control, hedging and reducing risk exposures to control market risk.
During the reporting period, the Company has formulated credit risk preferences and risk control index system, revised the primary institution for market risk management and further improved the systems for market risk management.
INTERIM REPORT 2016 35 Management Discussion and Analysis
The Company formulates the primary institution for interest rate risk of banking book and improves the risk management system for interest rate risk of banking book. The Company mainly evaluates our interest rate risk through sensitivity analysis. Based on our judgment on the trend of the benchmark interest rate and the market interest rate, the Company actively adjusts the interest rate sensitivity gap between our assets and liabilities mainly by adjusting and controlling the loans re-pricing period and the duration of our bond investment business. In the meanwhile, the Company pays close attention to the trend of local currencies and foreign currencies, keeps abreast of the changes in the market interest rates, conducts appropriate scenario analysis and adjusts the pricing methods for the interest rates of loans and deposits denominated in local currencies and foreign currencies in a timely manner to strive to prevent interest rate risk.
The market risk for the Company’s trading accounts arises primarily from changes in the asset values of financial products in our trading accounts, which are affected by market interest rates and exchange rates. The Company evaluates the positions of our trading accounts on a daily basis, continuously monitors trading limits, stop-loss limits and risk limits, and regularly measures the market risk for our trading accounts through stress testing and other methods.
36 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
4. Liquidity risk management
Liquidity risk refers to the risks of failure to obtain adequate funds in time at reasonable cost to repay debts when they are due, perform other payment obligations and meet other capital requirements in the ordinary course of business. It is mainly influenced by external factors such as domestic and foreign financial conditions, macroeconomic policies, vertical and horizontal developments of financial markets and the competition outlook of the banking industry. It is also influenced by internal factors such as the maturities of assets and liabilities, business structures, the stability of deposits, the ability to obtain financing in the market and various unexpected events. We adhere to a principle of prudent management of our liquidity risk and strictly comply with regulatory requirements in order to establish a prompt, reasonable and effective liquidity risk management system, keeping our efficiency while promoting continuous, healthy and stable development on the basis of ensuring the safety of our capital operations.
The Company manages our liquidity risk in a centralized manner. The asset and liability management department at our head office is the leading executive department for our liquidity risk management. The Company’s key management measures and processes for liquidity risk management include:
Paying close attention to both domestic and foreign economic and financial market trends; actively analyzing the effects of macroeconomic policies and changes in the development of financial markets on our liquidity management; adjusting our asset and liability management strategy in a timely manner and continuously optimizing the structure and terms of our liabilities.
Enhancing management of our financing channels; actively maintaining relationships with major financing counterparties; diversifying our financing sources and further optimizing our financing structure.
Strengthening the pre-warning monitoring and management on liquidity; improving our initiative for liquidity risk management; optimizing our emergency response program for liquidity risk to ensure the reliability of the funds to be used for emergency response and the effectiveness of relevant emergency measures.
Carrying out stress tests for liquidity risk on regular basis, identifying the weak links in the Company’s liquidity risk management according to the tests, adjusting liquidity risk management strategies or the size and structure of high quality liquid assets if necessary, and modifying our liquidity risk management measures in a timely manner to improve our liquidity risk management mechanism.
At the end of June 2016, our liquidity coverage ratio was 74.00%, our high quality liquid assets amounted to RMB100.548 billion, and the total net cash outflows over the next 30 days was RMB135.873 billion.
INTERIM REPORT 2016 37 Management Discussion and Analysis
5. Operational risk management
Operational risk refers to the risk of losses that may be incurred due to inadequate or problematic internal procedures, personnel or information technology systems, as well as external events.
During the reporting period, the objectives of operational risk management are to control our operational risk within a reasonable range acceptable to us and maximize the comprehensive benefits across the Bank adjusted with respect to risks. The Company continuously improved its operational risk management framework and management mechanism, reasonably integrated the management resources and enhanced risk prevention and control. The Company carried out the specific review of the operational risk across the Bank, emphasizing the implementation of systemically rectified measures and further improving the relevant systems and procedures, so as to achieve the update and optimization of multiple information systems; organized and carried out the inspection regarding banknotes business across the Bank and enhanced the inspection risks of the key areas and links based on the latest regulatory requirements and the changing trend of banking operational risks. In the first half of 2016, the Company carried out the inspection on employees’ abnormal behaviors and inappropriate positions, and prevented and handled the abnormal behaviors found in the inspection timely; combed the rules and policies for various business lines across the Bank and management procedures for the key events to strengthen the effectiveness of system and procedure management and control. The Company actively propelled the establishment of operational risk standard under the new capital agreements to gradually complete the application of operational risk management tools.
6. Compliance risk management
Compliance risk refers to the risk of legal sanctions, regulatory penalties, significant financial losses and losses of reputation that may result from the failure of a commercial bank to comply with laws, regulations, rules and relevant industrial standards. The Board of the Company is ultimately responsible for the compliance of our operating activities, and authorized its risk and related party transaction control committee to supervise the compliance risk management. The risk management committee at our head office is the highest management organ under the Company’s senior management for the compliance risk management across the Bank. The Company has established a relatively sound compliance risk management structure and system, and optimized three lines of defense for compliance risk management and dual reporting mechanism. We continuously modified, improved our compliance risk management mechanism and improved our risk management level to achieve effective control over compliance risks.
38 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
During the reporting period, the Company continuously deepened the compliance operation philosophy, and promoted compliance management efficiency effectively while exactly knowing the characteristic of the risk prevention and control under the new economic normal and sticking to the risk bottom line. The Company published the guiding opinion on internal control and compliance and legal affairs for 2016 and implemented the requirements for compliance management objectives across the Bank. The Company focused on the market heats, key points of regulation and work, and consolidated the indicating work of compliance risk; optimized the evaluation system for internal control and compliance, deepened the idea of procedure compliance and implemented the inspection and evaluation for internal control and compliance management by the departments at our head office. The Company continuously enhanced the legal compliance risk management while actively tracing the changes of laws and regulations at home and abroad, promoted the professional levels of legal services and increased the legal support for daily operation and management, so as to guarantee us to operate in a lawful and compliance manner and the sound development of our businesses.
7. Reputational risk management
Reputational risk refers to the risk that a stakeholder will have a negative view on us as a result of our operations, management and other activities or external events.
Our objectives with respect to reputational risk management is to prevent reputational risk occurring from its source by starting with operation and management aspects; to correctly respond to news relating to us, public opinions towards us and our relationships with our customers, actively and effectively prevent reputational risk and respond to reputational events, so as to reduce and mitigate the losses of and the negative impact of such events on the Company, stakeholders and the public in the society to the greatest extent. Reputational risk management has been included in corporate governance and comprehensive risk management system.
The head office president, risk management committee, executive office, risk management department, information and technology department and other relevant departments at our head office, together with our branches and sub-branches, jointly constitute our organizational system with respect to reputational risk management of the Company at the operational management level. As authorized by our Board, the head office president is comprehensively responsible for promoting the strategies, policies and decisions of the Board, and formulating and implementing our basic systems and policies for reputational risk management.
INTERIM REPORT 2016 39 Management Discussion and Analysis
8. Information technology risk management
During the reporting period, the Company actively implemented the Information Technology Development Planning for China Zheshang Bank (2016-2020) (“π Plan”), promoted information technology transformation from “support” to “push”, established the application systems such as Yongjin Assets Pool, Zengjin Wealth Pool, property market, finance lease system and cloud payment, etc. Meanwhile, we promoted the construction of core system of overseas Hong Kong Branch (under preparation), and endeavored to promote the application of new technology, the construction of big data technology platform as well as smart networks; studied the application of block data-link technology; based on our data backup system planning of “three centers in two different cities”, we promoted to build the new generation data center, intercity and intracity data backup center; strengthened system operation management, pushed the refinement and intellectualization of operation and maintenance; endeavored to promote information safety ecosystem engineering, perfected application safety and internet safety construction, and gradually formed a holistic, multilayered and high availability safety defense system. We implemented information technology safeguard measures proposed on G20 Hangzhou Forum; strengthened important information system safety detection, evaluation, monitoring and emergency excise to improve business continuity guarantee capability. During the reporting period, the system ran stably, no substantial information risk events occurred.
9. Anti-Money Laundering Management
During the reporting period, the Company carefully performed its social liability and legal obligations on anti-money laundering, comprehensively strengthened the anti-money laundering compliance management, and the effectiveness of the activity has been consistently promoted. We established and improved anti-money laundering internal control system, further clarified the duties and job responsibility on anti-money laundering of the Board of Directors, the Board of Supervisors and Senior Management, as well as the assignment of responsibility between relevant departments, perfected the setting of anti-laundering organization and personnel; considering the new situations and new changes of anti-laundering work, we promoted the construction of anti-money laundering system, comprehensively revised major systems including anti-money laundering work management measures; combining huge amount transaction and suspicious transaction reporting general pilots experience extending, we further optimized suspicious transaction autonomic monitoring model and system operation function, and the management capability of anti-money laundering system was further enhanced; we promoted customer data governance in classification and in steps, which effectively enhanced the accuracy and completeness of customers’ information data across the Bank.
40 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(VII) Business Summary
1. Corporate business segment
We strive to develop ourselves into a bank that provides corporate liquidity services and full-value-chain services
Guided by the full-asset class operation strategy, our corporate banking business strived to strengthen the innovation of our business model and marketing mechanism, enhance the construction of our basic customer base, and facilitate our transformation and development to improve our core competitiveness.
We are a bank that provides corporate liquidity services. During the reporting period, to meet corporate customers’ core needs for reducing financing costs and improving service efficiency, the Company continued facilitating our “pooled financing” services innovation and “Internet Plus” (互 聯網+) application, continuously improved our business functions such as “Yongjin Bill Pool” (湧金票 據池), “Yongjin Export Pool” (湧金出口池) and “Yongjin Asset Pool” (湧金資產池), and innovatively introduced online loan products and “1+N” credit extending model for new online supply chain to spare no efforts to develop a bank that provides corporate liquidity services. As at the end of the reporting period, the Company had 6,203 customers of Asset Pool (資產池) (Bill Pool (票據池)) who signed contracts with respect to these products, representing an increase of 60.57% as compared to that at the beginning of the year, with an accumulated pooled asset amount of RMB281.539 billion, representing an increase of 74.01% as compared to that at the beginning of the year. The accumulated accounts receivables amount of “Yongjin Export Pool” (“湧金出口池”) had reached US$1.099 billion, representing an increase of 361.76% as compared to that at the beginning of the year. We extended accounts receivables financing of US$622 million, representing an increase of 288.75% as compared to that at the beginning of the year.
We are a bank that provides full-value-chain services. During the reporting period, the Company actively promoted transformation of traditional financial service model, explored a full-chain and comprehensive investment and financial service system, expanded corporate financing channels, and promoted innovation in trading business model which combined loans and asset securitization, engagement in private placements business of listed companies on the basis of credit increase by substantial shareholders, as well as cooperation with external private funds to participate in the direct investment in equity of governmental industrial funds. Our product lines and service lines have covered the financial needs of enterprises during each development stage, and we have established business partnership with over 100 listed companies or their shareholders. All of these have contributed to our initial capabilities to provide full-value-chain services to enterprises
INTERIM REPORT 2016 41 Management Discussion and Analysis
(1) Corporate customers’ loans and deposits business
The Company made positive response to the strategy of the Chinese government to promote structural reforms on the supply side and transformation and upgrade of industrial structure, explored a featured financial service model for emerging industries and intelligent manufacturing sectors, promoted intensive operation and management of our businesses with respect to local governments and real estate, enhanced our cooperation with strategic customers and construction of basic customer base, continuously optimized our business structure and customer structure and made remarkable achievements.
As of the end of the reporting period, corporate deposits were RMB614.691 billion, representing an increase of RMB124.590 billion or 25.42% as compared to that at the beginning of the year, while corporate loans were RMB292.583 billion, representing an increase of RMB50.099 billion or 20.66% as compared to that at the beginning of the year.
(2) Investment banking business
Through investment banking business, the Company provided customers with diversified financial services and continued to expand customer base and cultivate basic customer base for the purpose of strengthening market competitiveness and influence. We continued to increase efforts on bond underwriting so as to expand our customer group of bond underwriting, covering local governments, financial institutions and non-financial enterprises. We made breakthroughs in respect of leasing company’s asset-backed bill business and constantly expanded the varieties of bonds. During the reporting period, various types of bonds underwritten by the Company amounted to RMB55.355 billion, representing an increase of 99.18% on a year-on-year basis. The credit asset-backed securities issued by us amounted to RMB3.870 billion, representing an increase of RMB2.049 billion as compared to that in 2015.
The Company ranked the 14th among the credit asset-backed securities promoters for the first half of 2016. During the reporting period, the Company was awarded “2016 Grand Awards for the Best Bank of Investment Banking (Industry) in China District” (2016中國區最佳銀行(行業)投 行綜合大獎) and “The Best Bond Underwriting Bank in China District for 2016” (2016中國區最 佳債券承銷銀行) by the Securities Times.
42 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(3) International business
During the reporting period, the Company’s international business maintained a steady and rapid growth. As of the end of the reporting period, the international settlement we have completed amounted to US$21.906 billion, representing an increase of 111% on a year-on-year basis. Year-on-year growth rate of foreign exchange receipts and payments ranked the first among 12 nationwide joint-stock commercial banks (according to statistics by the State Administration of Foreign Exchange). The income of intermediary business amounted to RMB0.192 billion, representing an increase of 135% on a year-on-year basis. The balance of trade finance amounted to US$7.500 billion, representing an increase of 61% on a year-on-year basis.
Supported by our professional team, we provided enterprises with flexible and competitive foreign exchange product portfolio and offered a series of structured trading programs such as “Shuangbiying Forward Foreign Exchange Settlement” (雙幣盈遠期結匯), “Cunhuitong” (存匯通) and “Gouhuitong” (購匯通) in a timely manner in response to the volatile condition of current interest and exchange rate market to help our customers avoid exchange rate risk efficiently and achieve financial appreciation, which won good market response and led to rapid increase in our total trade volume to US$10.2 billion in half a year, representing an increase of 192% on a year-on-year basis.
We actively expanded our cooperation channels with correspondent banks and have established a good cooperation relationship with nearly 1,000 banks in nearly 150 countries (regions) at home and abroad. We provided customers with convenient and efficient cross-border financial service support by means of our extensive correspondent bank networks and service channels.
2. Inter-bank financial segment
Forging a bank for inter-bank trading service
The inter-bank financial segment business acquires high quality customers, designing innovative products, achieving excess returns for the Company. We have also set up six departments at the head office level, including Financial Market Department, Capital Markets Department, Financial Institutions Department, Asset Management Department, Asset Custody Department and Financial Market Risk Management Department, gradually forming an improved and professional inter-bank financial service platform. In the recent two years, in order to actively respond to the new trend of liberalization of interest rates as well as more established integrated operations and stricter regulation, the inter-bank financial segment of our Company aims to establish a “trading service bank” and adheres transformation, innovation and compliance, diversifying the source of assets and liabilities, increasing the profit gradually and enhancing value contribution. During the reporting period, the Company strengthened the cooperation with transaction entities in all kinds of capital markets through businesses, modes and the innovation of the system, participating in the construction of capital market in different levels, exploring businesses in various capital markets, innovating the business cooperation mode of the collaboration of investment and lending, providing integrated financial service to over a hundred listed company, new economic entity and local industry fund. By serving the real economy instead of the virtual economy, the Company has achieved high recognition and influence in the market.
INTERIM REPORT 2016 43 Management Discussion and Analysis
(1) Financial market business
With respect to our financial market business, the Company was committed to establishing itself as a professional bank for trading services; putting aggressive efforts in setting up a comprehensive platform integrating proprietary investing and financing, proprietary trading and trading on behalf of customers; taking full advantages of various business licenses in the financial market; strengthening product innovation and business synergies in a continuous manner with an aim to provide an all-around, one-stop financial services solutions with high sustainability. During the reporting period, the Company has obtained the qualification as a first- class dealer for open market business, enabling itself to become a counterparty of the open- market operations of the People’s Bank of China.
Our proprietary investment and trading business recorded rapid growth. We flexibly deployed financing tools in the money market, enhanced the capabilities of undertaking liabilities; optimized asset allocation, boosted the yield for capital operations; captured opportunities in the market and enhanced the level of activities of trading. During the reporting period, our interbank trading volume in local currency amounted to RMB6.23 trillion, representing a year- on-year growth of 150%, among which the trading volume of interest rate derivatives amounted to RMB154.2 billion, representing a year-on-year growth of 1,100%; the trading volume of foreign exchange amounted to US$107.536 billion, representing a year-on-year growth of 165%, among which the trading volume of exchange rate derivatives amounted US$80.2 billion, representing a year-on-year growth of 135%.
The trading service business for enterprises and medium and small-sized financial institutions grew rapidly. There were breakthroughs in the gold leasing and hedging business for corporate customers. The product line to customers of the financial market business was further improved. We provided services for derivatives trading and consulting services for fixed income investments in local and foreign currencies on behalf of medium and small-sized city commercial banks, rural commercial banks and private equity funds, expanding the scope of interbank cooperation from traditional investing and financing to advisory and consultation and enhancing the efficiency of cross-selling. During the reporting period, our foreign exchange transaction with customers amounted to US$9.176 billion, representing a year-on-year growth of 114%, of which derivative transaction amounted to US$3.2 billion, representing a year-on-year growth of 716%.
44 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(2) Interbank business
Adhering to the operating concept of “broad inter-bank” (大同業), the company actively cooperated with various channels of interbank customers including banks, securities, insurance, trusts, funds, finance companies, financial leasing companies and financial asset management companies, adjusted the structure of interbank assets and raised the weight of investment assets with high-yield held. During the reporting period, the trading volume of bill transfer discount maintained its solid development momentum at RMB2.93 trillion, representing a year-on-year growth of 563%.
Enhance channel building and client management. During the reporting period, the Company enhanced general-to-general cooperation in order to build multi-level and diversified strategic and cooperative partnerships by signing comprehensive strategic cooperation agreements with several state-owned banks, joint-stock banks and financial leasing companies. The number of interbank credit customers continued to increase, with the base of quality customers enlarged steadily and two-way line of credit grew, laying a good foundation for the Company to deepen subsequent interbank business cooperation.
Enhance business innovation and internal management. We actively adapted to new normal through enhancing products and service innovation continuously, as well as increasing interbank investment channels. During the reporting period, the Company put efforts in developing interbank investment and interbank financing with interbank customers, which improved capital operation level effectively. We standardized interbank operation system, implemented the requirements of the interbank proprietary department, standardized business operation process, and prevented compliance and operational risks.
(3) Asset Management Business
The Company’s asset management business is centered on serving our customers, and aims to build a professional platform that is equipped with cross-market and multi-tool applications, enjoys professional efficiency higher than our peers and provides one-stop solutions to fulfill customers’ investment and financing needs. With respect to this business, the Company continuously optimizes our product mix for investment and financing, continues to improve our capabilities in investment research, all-round exploration of fund-raising channels, open market trading and investment banking design for various projects, and providing comprehensive financial services for customers, striving to build a respected asset management business brand of China Zheshang Bank featured by “professional management, customer first, differentiated competition and leading efficiency”.
INTERIM REPORT 2016 45 Management Discussion and Analysis
During the reporting period, the Company’s asset management business continued to center on multi-level capital market system, provide capital market services of the whole value chain for each stage of corporate development and keep optimizing the client structure of the Company, hence financial service chain that can both serve real economy and satisfy direct financing needs is being built gradually. At the end of the reporting period, the balance of our wealth management products amounted to RMB242.660 billion, representing an increase of 13.35% as compared to that at the beginning of the period, including balance of open financial products which amounted to RMB122.116 billion and accounted for 50.32%, close financial products which amounted to RMB120.544 billion and accounted for 49.68%, balance of non-guaranteed financial products which amounted to RMB242.560 billion and accounted for 99.96%, and balance of guaranteed financial products which amounted to RMB100 million and accounted for 0.04%. During the reporting period, the Company issued wealth management products of a total of RMB175.224 billion, representing an increase of 37.29% on a period-on-period basis, and raised investment income of a total of RMB3.812 billion for our customers. During the reporting period, the Company put aggressive efforts in building our asset management brand and had been selected as the second permanent vice president of the Wealth Management Professional Committee of China Banking Association. The Company also obtained various professional awards including “Best Return Award” and “Best Risk Control Award” from wealth management institutions of the China Banking industry, “Best Wealth Management Brand in China” and “Best Open Bank Financial Products in China” from Securities Times, and “Best Bank Wealth Management Brand” and “Best Design of Product Fund” from 21st Century Business Herald.
(4) Asset Custodian Business
The Company implemented deep development, product innovation and full-process optimization of the asset custodian system and launched an electronic payment system to create a solid base for the rapid growth of the asset custodian business of the Company. As at the end of the reporting period, the balance of assets under custody amounted to RMB599.506 billion, representing an increase of 94.12% as compared to that at the beginning of the period.
The Company offers a gradually wider variety of custodian products including public offering fund, fund house client asset management product, securities house client asset management products, bank wealth management products, trust plans, equity investment funds and insurance house asset management products. As at the end of the reporting period, fund house client asset management products under custody amounted to RMB150.367 billion, increased by RMB49.087 billion as compared to that at the beginning of the period; securities house client asset management products under custody amounted to RMB174.899 billion, increased by RMB102.987 billion as compared to that at the beginning of the period; trust plans under custody amounted to RMB141.413 billion, increased by RMB71.630 billion as compared to the beginning of the period.
46 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
3. Small enterprise business
We make efforts to build a bank providing customized services for small and micro enterprises
The Company captured the economic transformation opportunities, fastened innovation, explored new finance business and mode for small and micro enterprises and built a bank providing customized services for small and micro enterprises. As of the end of the reporting period, the national-standard small enterprise loan balance of the Company was RMB120.546 billion which increased by RMB13.132 billion or 12.23% as compared to that at the beginning of the year. The increase exceeded that for the same period of last year by RMB6.178 billion.
We fastened product innovation and increased overall service capacity. We launched products and services including “accounts universal” (賬戶通) with public and private interactive payment function, “credit universal” (信用通) with limit adjusted neatly and “growth loan” (成長貸) satisfying needs of small and micro customers upon its size growth and customized exclusive finance service products including “residential loans of Small and Micro Enterprise” (小微民宿貸) and “Youth Entrepreneurs loan” (青年創客貸) against financing “pain points” of different customers, which effectively increased customer service capacity and improved customers’ average usage times of products.
We aimed at the emerging industry and expanded our customer base of small and micro enterprises. The total number of our small and micro customers reached 100 thousand through accelerating the expansion of our customer base of small and micro customers. During the reporting period, the Company has put 58% of its increased small and micro enterprise loans into the emerging industry, where the new technologies and consumption upgrading have driven the continuous growth in our customer base in emerging industry, group clients and strategic customers from the upstream and downstream of the industrial chains. We reinforced our effort to support the undertaking of the personnel from “Innovation and Entrepreneurship Program” (雙創) (such as “Thousand Talents Program For our Nation and Province” (國千、省千)) through holding the financial cooperation meeting with the personnel from “Thousand Talents Program” (千人計劃). The loan balances for “Innovation and Entrepreneurship Program” increased by RMB5.7 billion as compared to that at the beginning of this year, which results in the increase of the Company’s brand recognition for the small and micro enterprises.
We kept abreast of the policies and solved financing difficulties in “Agriculture, Rural Areas and Farmers”. We accelerated to expand the business of “two rights” mortgage loans in rural areas. According to the requirements of Interim Measures for the Pilot Program of Granting Mortgage Loans Secured with Farmers’ Housing Property Rights, we promoted the development of the business of mortgage loans secured with farmers’ housing in an orderly and steady manner on the basis of full-scale market research. As of the end of the reporting period, the balances of the mortgage loans secured with farmers’ housing was RMB342 million with 579 users.
INTERIM REPORT 2016 47 Management Discussion and Analysis
4. Personal business
We strived to develop ourselves into a bank for personal wealth management
The Company maintained a positive development trend in business operations and achieved rapid growth in customer scale and financial assets by adhering to the development direction of building ourselves into a bank for personal wealth management and by strengthening the “Internet plus” and innovation. During the reporting period, the Company actively integrated the Internet genes and created personal business with featured competitive strengths, and successively launched businesses and products including a new version of mobile banking, a one-stop investment and wealth management platform “finance market” (財市場) and the first individual pooled credit financing product in the industry “zengjin wealth pool” (增金財富池).
The Company gradually focused on residential mortgage loans and consumption loans. During the reporting period, the Company launched a new consumption loan product “Zhe mortgage loan” (浙抵 貸). The aggregate balance of residential mortgage loans and consumption loans increased by 165% as compared to that of the beginning of the year and loan quality kept excellent.
(1) Wealth management
During the reporting period, the Company kept increasing individual finance service capacity and expanding basic customer base while focusing on marketing and promotion of wealth management products including Zengjinbao (增金寶) and Yongle (永樂) series and innovating to launch such new products as Youlijia (優利加) and private bank wealth management (私行理 財). The Company also innovated marketing methods and kept launching the activity of “special pick-up to Zheshang for wealth management” (專車接送來浙理財).
As of the end of the reporting period, the number of effective individual customers was 1.5265 million, increased by 38.73% as compared to that of the beginning of the year; individual financial assets balance was RMB94.208 billion, increased by 31.30% as compared to that of the beginning of the year; Zengjinbao (增金寶) was rewarded as “the best deposit product” by The Asian Banker.
48 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(2) Credit card business
During the reporting period, we issued more than 500,000 credit cards in accumulation, which realized a consumption of RMB3.372 billion and overdraft balance of RMB0.926 billion. The circulation, consumption and overdraft of credit cards increased steadily.
The Company cooperated with an international card organization VISA and jointly issued the Visa Card with Crowd-funding Dreams (眾籌夢想Visa卡); launched characteristic services including personalized card; carried on card issuance promotion activities including “concerted efforts, crowd-funding dreams” (齊心合力,眾籌夢想) and “spring blossoms” (春暖花開) and built promotion brand “Accommodation & Entertainment, Full Strategies for Life in Zhe” (食宿行樂,浙 有生活全攻略), which greatly improved the customers’ card using experience and service quality.
We were rewarded the “Most Potential Award for UnionPay Card Business” (銀聯卡業務最具潛 力獎), “Sincere Cooperation Award for Visa in China’s Banks” (Visa中國區銀行精誠合作獎) and “TOPDigital Brand Building Gold Award” (TOPDigital品牌建設金獎).
INTERIM REPORT 2016 49 Management Discussion and Analysis
5. Internet Finance and Electronic Banking
(1) Internet Finance
During the reporting period, the Company captured the significant opportunity brought by “Internet Plus” strategy implemented by our nation, and targeted the corporate and individual clients in the Internet environment as our service and marketing target. We innovated in the featured Internet financial products and our service platform, deepened the cooperation with Internet finance ecosystem and built the Internet financial characteristics and the brand of the Company starting with the typical problems of our clients and the application scenarios.
First, we innovatively launched the featured Internet financial products such as “Receipt and Payment Express”, “Custody Express”, “E-commerce Payment” and “Mobile Cloud Pay”. Among others, “Receipt and Payment Express” focuses on the trading agency service in terms of receipt and payment, which is offering multi-channel and round-the-clock integrated service of payment and settlement; “Custody Express” provides “standard model+ customized” bank custody service for bulk trading; “E-commerce Payment” provides various payment models of E-commerce transaction for different E-commerce platforms and different users; and “Mobile Cloud Pay” puts its emphasis on developing large and medium E-commerce platforms with higher business growth potential, on mobile payment application scenarios closely related with people’s “clothing, food, living and transportation”, and on new applications in mobile payment industries such as school bills, medical and sanitary sectors and intelligent supermarkets.
Second, we conducted comprehensive custody business cooperation, and have developed a multi-class custody business system including custody for third party payment companies, custody for bulk trading and custody for prepaid card for single purpose. In the first half of this year, custody business for prepaid card for single purpose has been conducted, custody business for third party payment companies has begun to take shape, and custody business for bulk trading has made a breakthrough.
Third, we continued to deepen our cooperation with non-bank payment institutions, institutions in financial market, institutions in securities industry, corporations in fields such as online borrowing, E-commerce, consumer finance and public utilities, centering on strategies of win-win cooperation and mutualistic symbiosis under the Internet finance ecosphere, attributable to which, we have made a breakthrough and have gained nearly 100 projects in total in respect of which cooperation intention has been reached in the first half of this year.
Fourth, we actively joined in the National Internet Finance Association of China to promote the development of Internet finance business. The Company successfully became a council member of the National Internet Finance Association of China. Relying on the platform of the association, we further strengthened our position and influence in the industry; we actively promoted the construction of Zhejiang Association of Internet Finance and took a lead in the establishment of the public relationship committee of the association; and we strengthened the connection with Internet finance associations in various regions, and cooperated actively with each member of the association.
50 CHINA ZHESHANG BANK CO., LTD. Management Discussion and Analysis
(2) Electronic banking
The Company has comprehensively formed an electronic banking services system consisting of online banking, direct selling mobile banking, telephone banking, mobile banking, WeChat Banking and self-service banking system. The replacement rate of electronic banking channels reached 95.90%, which is a leading level in the industry.
Online banking
During the reporting period, the Company continued to optimize and upgrade the personal online banking, by newly adding various functions like Money Market, Golden Fortune Pool and personal loans. New interface style has been launched to greatly facilitate friendly interaction. As of the end of the reporting period, the Company had nearly 30% more certificate customers of online banking than that of the beginning of the year.
Corporate online banking channel has become the most important self-service channel for our corporate customers. The channel continued to maintain steady development, with the customer base getting enlarged and customer trading vitality advancing ceaselessly. During the reporting period, transaction settled through the corporate online banking amounted to nearly RMB2 trillion.
Direct selling mobile banking
During the reporting period, direct selling mobile banking had covered the direct selling mobile banking of the Company’s official website, mobile Zengjinbao App and WeChat banking etc., becoming a main channel for the sale of investment and financial products. Particularly, the online personal financial products transfer service has gained extensive recognition among users, and was named “Best Customer Experience” in the Gold List of E-banking in China. As of the end of the reporting period, the number of customers in direct selling mobile banking reached 530,000.
Telephone banking
Customer service center upholds the service motto of “customer-centered” by breaking the traditional mindset of customer service to build a multi-channel operating platform assembling telephone, QQ corporate telephone, text messaging and other online services. More customers could be reached by taking advantage of service contacts and natural interaction, while their needs could be deeply recognized through cross-marketing or secondary marketing, which effectively enhanced integrated value contribution of customers.
INTERIM REPORT 2016 51 Management Discussion and Analysis
Mobile banking
During the reporting period, the Company was committed to forging mobile banking as the main platform for mobile financial services, launching a new version of mobile banking through deep integration of mobile Internet technology. Interface of the new version of mobile banking is clear and easy to use, thus greatly enhances the customer experience. As such, it was named “2016 Innovative mobile banking” by Sina Finance. As of the end of the reporting period, the Company had nearly 50% more personal customers of mobile banking than that of the beginning of the year.
WeChat banking
During the reporting period, the Company was committed to establishing WeChat banking to be an important platform for new types of financial services and brand promotion. As of the end of the reporting period, the Company had nearly 800,000 customers in WeChat banking, while amount of information being read in WeChat banking exceed 3.6 million times. The official public WeChat banking was named “2016 Best Social Marketing Platform in Financial Sector” in Golden Chestnut Award of China Financial Marketing.
Self-service banking
During the reporting period, the Company continued to establish the self-service banking channels to provide customers with 7×24 hours self-service banking such as automated teller machines and cash recycling systems, so as to fully meet the needs of deposits, withdrawals, transfers, balance inquiries, modify passwords and other financial services from customers.
(VIII) Outlook
In the second half of 2016, the Company, under the guidance of the vision of “becoming the most competitive nationwide joint-stock commercial bank and the most important financial platform in Zhejiang province”, will continue to promote the implementation of our full-asset class operation strategy. Centering on three main cores of integration, digitalization and flattening, we will fully implement strategic measures under “Third-Five-Year” plan, create strong leading capability of headquarter, achieve first-class execution, stay ahead of competitors in innovation, coordinate with each other to achieve efficiency and win-win, hold strategic composure with high ambition and own soft power with agility and pragmatism. We will always be customer-oriented to accelerate the establishment of customer management structure system and consistently expand customer base by focusing on capital creation and sales ability. We will continue to enhance our innovation in the business mode targeted at the market and customer experience and the modification on our business procedures, keep improving financial function, enrich products and services system, and speed up the cultivation of distinguishing competition. The Company will also deepen comprehensive risk management, endeavor to build comprehensive risk management system which adapts to full-asset class operation strategy, and strengthen management of various risks.
52 CHINA ZHESHANG BANK CO., LTD. Corporate Governance
(I) Overview of Corporate Governance
During the reporting period, the Company further improved its system construction, gave full play to the Board’s responsibilities of strategy formulation, risk management and internal control, strengthened the Board of Supervisors’ supervision and enhanced communication among the Board of Directors, the Board of Supervisors and Senior Management.
During the reporting period, the Company held a total of 24 meetings, including 1 shareholders’ general meeting, 3 meetings of Board of Directors, 11 meetings of special committees under Board of Directors, 4 meetings of the Board of Supervisors and 5 meetings of special committees under Board of Supervisors. Material resolutions, such as the Company’s annual report, working reports of the Board and the Board of Supervisors, working report of the president, financial account report, financial budget report, profit distribution scheme, report of related party transactions and organization establishment scheme were reviewed and approved at these meetings.
During the reporting period, the Company, in accordance with the domestic and overseas regulatory requirements, formulated and amended various policies and measures including the Articles of Association of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司章程》), the Policy for the Diversified Composition of the Board of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司董事會多元化政策》), Shareholders’ Communication Policy of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司股東通訊政策》), Code for Securities Transactions of Directors, Supervisors and Employees of China Zheshang Bank Co., Ltd. (《浙商銀 行股份有限公司董事、監事及僱員證券交易守則》), Administrative Measures for Disclosure of Information of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司信息披露管理辦法》), the Interim Measures for Investor Relations Management of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司投資者關係管理暫 行辦法》), Guidelines on Operating Procedures of Related Party Credit Business of China Zheshang Bank (《浙 商銀行關聯方授信業務操作規程》) and Administrative Measures for Share Pledge of China Zheshang Bank (《浙 商銀行股權質押管理辦法》), which further improved the corporate governance system of the Company.
During the reporting period, the Board of Directors had field surveys on Nanjing Branch, Chongqing Branch, Chengdu Branch and Wuhan Branch to acquire general knowledge of the implementation of our full-asset class operation strategy of each branch and conclude and analyze the experience they gained and challenges they faced, thereby making more targeted and effective decisions by the Board of Directors. Besides, the Company continuously tracked the implementation of resolutions of the Board of Directors through implementation supervision, so as to enhance the Board’s ability to control the implementation of strategies.
During the reporting period, the Board of Supervisors had field surveys on Guangzhou Branch, Quzhou Branch and Lishui Branch to acquire on-site knowledge of the operation and management information of each branch, and focused on a thorough analysis on credit risks, liquidity risks and market risks and made corresponding recommendations in this regard.
INTERIM REPORT 2016 53 Corporate Governance
(II) Shareholders’ General Meeting
On June 15, 2016, the 2015 annual general meeting of the Company was held in Hangzhou, on which various resolutions were considered and approved, including the 2015 Work Report of Board of Directors of China Zheshang Bank Co., Ltd., 2015 Work Report of Board of Supervisors of China Zheshang Bank Co., Ltd., 2015 Financial Account Report of China Zheshang Bank Co., Ltd., 2015 Profit Distribution Scheme of China Zheshang Bank Co., Ltd., 2016 Financial Budget Report of China Zheshang Bank Co., Ltd., the Appointments and Remunerations of PricewaterhouseCoopers Zhong Tian LLP and PricewaterhouseCoopers, as the Domestic and International Auditors of the Company Respectively for the Year 2016 to Hold Office until the Conclusion of the Next Annual General Meeting, Resolution on the Election of Ms. Cheng Huifang as an External Supervisor of the Company, Resolution on the Remuneration of Chairman of the Board for 2015, Resolution on the Remuneration of Chairman of the Supervisory Committee for 2015, Resolution on the Acquisition and Lease of Office and Business Properties for Hangzhou Branch of the Bank, and Resolution on the Amendments to the Articles of Association of China Zheshang Bank Co., Ltd..
For details of the relevant resolutions considered at the meeting, please refer to the announcement published on the websites of Hong Kong Stock Exchange and the Company.
(III) Meetings of the Board and its Special Committees
During the reporting period, 3 meetings of the Board of Directors were convened, on which 37 resolutions were considered and approved, and 3 special reports were debriefed.
During the reporting period, a total of 11 meetings of the special committees under the Board of Directors were convened, including 2 meetings of the Strategic Committee, 2 meetings of the Audit Committee, 5 meetings of the Risk and Related Party Transaction Control Committee and 2 meetings of the Nomination and Remuneration Committee.
54 CHINA ZHESHANG BANK CO., LTD. Corporate Governance
(IV) Meetings of the Board of Supervisors and its Special Committees
During the reporting period, the Company held 4 meetings of the Board of Supervisors to review 15 resolutions. A total of 5 meetings of the special committees under the Board of Supervisors were convened, including 4 meetings of the Nomination Committee for review of 6 resolutions and 1 meeting of the Supervision Committee under the Board of Supervisors for review of 2 resolutions.
(V) The Policy for the Diversified Composition of the Board of Directors
Pursuant to relevant regulations of Hong Kong Listing Rules, the Company formulated the Policy for the Diversified Composition of the Board of China Zheshang Bank Co., Ltd. (《浙商銀行股份有限公司董事會多元 化政策》), which expressly stated that the Board of Directors would consider its composition from a diversified perspective in various aspects, including but not limited to gender, age, culture and education background, professional experience, skill, knowledge and/or service term.
(VI) Implementation of Information Disclosure
The Company always attaches importance to information disclosure, and strictly complies with various regulatory rules of the place where the Company is listed. On the basis of comprehensively and deeply learning various regulatory rules, the Company continuously sort out and perfect the implementation details of information disclosure management matter from the aspect of system structure and institutional level.
During the reporting period, the Company accurately, truly and completely disclosed various information in a timely manner, and a total of 33 announcements were released, which ensured that all shareholders had equal opportunity to get relevant information of the Company, and enhanced the transparency of Company’s governance.
INTERIM REPORT 2016 55 Corporate Governance
(VII) Investor Relations Management
The Company consistently makes good management on investor relations and promotes integration of market capitalization and intrinsic value. Aimed to maximize the investors’ profit and protect their legitimate rights and interests, the Company forms a corporate cultural concept of serving and respecting investors and procures sound interaction between the Company and the investors, thereby enhancing investors’ understanding and recognition on the Company.
During the reporting period, taking listing in Hong Kong as an opportunity, the Company strengthened market communication and introduction, and the management conducted several roadshows in America, Singapore, Hong Kong, Beijing and Shanghai. They made in-depth exchange with the investors and the analysts, timely answered the questions that investors concerned, and effectively expanded the coverage of the investors.
During the reporting period, the Company formulated and perfected the administrative measures for investor relations in accordance with the regulatory requirements of the listing place and practical experience, managed the investor relations in various forms, and consistently enhanced service level of investors. Through reverse roadshow, website of investor relations, telephone, e-mail and other means, the Company handled over one hundred events in connection with investor relations, timely answered and fed back the questions raised by the investors, which effectively procured the further understanding of investors and analysts on the Company’s investment value and enhance the Company’s influence at capital market.
Aiming to get more attention and recognition from investors, the Company consistently improves the management of webpage of investor relations, timely updates the content on the webpage, earnestly collects investor information, duly traces the reports from analysts, strengthens dynamic monitor of media opinions and actively learns about advice and proposals for the Company’s operation and development from capital market.
(VIII) Securities Transactions by Directors and Supervisors
The Company had adopted a Code of Conduct for Securities Transactions by Directors and Supervisors no looser than the Model Code in Appendix 10 of Hong Kong Listing Rules. The Company had inquired all Directors and Supervisors and confirmed that they had been complying with the aforesaid Code during the period from the listing date (March 30, 2016) to June 30, 2016.
(IX) Statement of Compliance with the Corporate Governance Code as Set out in Hong Kong Listing Rules
The Company agrees to the principles of Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to Hong Kong Listing Rules. The Company has been in full compliance with the provisions of the Code during the period from the listing date (March 30, 2016) to June 30, 2016.
56 CHINA ZHESHANG BANK CO., LTD. Changes in Shares and Information on Shareholders
(I) Changes in Shares
During the reporting period, changes in the Company’s Shares are as follows:
Changes in the number December 31, 2015 during June 30, 2016 Number Proportion the reporting Number Proportion (Shares) (%) period (Shares) (Shares) (%) Domestic shares 14,509,696,778 100.00 -345,000,000 14,164,696,778 78.87 H shares – – +3,795,000,000 3,795,000,000 21.13 Total shares 14,509,696,778 100.00 +3,450,000,000 17,959,696,778 100.00
Notes: (1) The Company was listed on Hong Kong Stock Exchange on March 30, 2016 and fully exercised over-allotment option on April 19, 2016. The number of shares in the global offering was 3,795,000,000 H shares (comprising 3,450,000,000 new H shares offered by the Company and 345,000,000 sale shares offered by the selling shareholders). The share capital of the Company is 17,959,696,778 shares (comprising 14,164,696,778 domestic shares and 3,795,000,000 H shares) following the completion of the issuance.
(2) As of the end of the reporting period, the Company had a total of 26 domestic shareholders and a total of 149 H shareholders.
INTERIM REPORT 2016 57 Changes in Shares and Information on Shareholders
(II) Shareholdings of Top Ten Shareholders
Changes Number of in the shares shares held at during the end of Percentage Number of the reporting the reporting of total pledged Name of Nature of period period share capital shares No. shareholders shareholders (Shares) (Shares) (%) Class (Shares) 1 HKSCC Nominees Limited(1) – +3,794,709,000 3,794,709,000 21.13 H shares Unknown Herein: Zhejiang Provincial State-owned legal person +1,000,000,000 1,000,000,000 5.57 H shares – Seaport Investment & Operation Group Co., Ltd. 2 Zhejiang Provincial Financial State-owned legal person -241,110,781 2,655,443,774 14.79 Domestic shares – Holdings Co., Ltd. 3 Traveller Automobile Group Domestic non-state-owned – 1,346,936,645 7.50 Domestic shares 310,000,000 legal person 4 Hengdian Group Holdings Limited Domestic non-state-owned – 1,242,724,913 6.92 Domestic shares 143,169,642 legal person 5 Zhejiang Provincial Energy Group State-owned legal person -76,377,827 841,177,752 4.68 Domestic shares – Co., Ltd. 6 Minsheng Life Insurance Domestic non-state-owned – 803,226,036 4.47 Domestic shares – Company Ltd.(2) legal person 7 China Wanxiang Holding Co., Ltd.(2) Domestic non-state-owned – 543,710,609 3.03 Domestic shares – legal person 8 Zhejiang Yongli Industry Group Domestic non-state-owned – 518,453,371 2.89 Domestic shares 518,453,371 Co., Ltd. legal person 9 Zhejiang RIFA Holding Group Domestic non-state-owned – 518,453,371 2.89 Domestic shares 396,630,000 Co., Ltd. legal person 10 Zhejiang Hengyi High-tech Material Domestic non-state-owned – 508,069,283 2.83 Domestic shares – Co., Ltd. legal person
Notes: (1) The shares held by HKSCC Nominees Limited represent the total number of shares in the accounts of H shareholders of China Zheshang Bank as a nominee that are traded on the transaction platform of HKSCC Nominees Limited.
(2) To the best knowledge of the Company, as of the end of the reporting period, among the top ten shareholders mentioned above, China Wanxiang Holding Co., Ltd. held 37.32% shares of Minsheng Life Insurance Company Ltd.. Apart from that, the Company is not aware of any connection among the above shareholders or whether they are parties acting in concert.
58 CHINA ZHESHANG BANK CO., LTD. Changes in Shares and Information on Shareholders
(III) Interests and Short Positions in Shares and Relevant Shares Owned by Substantial Shareholders and Other Persons under Hong Kong Regulations
As of June 30, 2016, pursuant to the register entered by the Company under Section 336 of SFO, and to the best knowledge of the Company, the following persons (except for the Directors, Supervisors and Chief Executives of the Company (as defined in Hong Kong Listing Rules)) had interests and short positions in our shares or relevant shares which were required to be disclosed under the provisions of Divisions 2 and 3 of Part XV of the SFO:
Domestic shares:
Approximate Approximate percentage of percentage the relevant of total class of Long/short Number of share capital shares Name of Shareholder Nature of interests and capacity position Shares (Shares) (%) (%) Zhejiang Provincial Financial Benefit owner Long position 2,655,443,774 14.79 18.75 Holdings Co., Ltd. Zhejiang Province Financial Interest of controlled corporation Long position 2,655,443,774 14.79 18.75 Development Company China WanXiang Holding Benefit owner and interest Long position 1,346,936,645 7.50 9.51 Co., Ltd. of controlled corporation Mr. Lu Weiding Interest of controlled corporation Long position 1,346,936,645 7.50 9.51 Traveller Automobile Group Benefit owner Long position 1,346,936,645 7.50 9.51 Shanghai Junzhu Equity Interest of controlled corporation Long position 1,346,936,645 7.50 9.51 Investment Management Co., Ltd. Mr. Lin Cong Interest of controlled corporation Long position 1,346,936,645 7.50 9.51 Zhejiang Hengyi Group Benefit owner and interest Long position 1,242,724,913 6.92 8.77 Co., Ltd. of controlled corporation
INTERIM REPORT 2016 59 Changes in Shares and Information on Shareholders
Approximate Approximate percentage of percentage the relevant of total class of Long/short Number of share capital shares Name of Shareholder Nature of interests and capacity position Shares (Shares) (%) (%) Mr. Qiu Jianlin Interest of controlled corporation Long position 1,242,724,913 6.92 8.77 Hengdian Group Holdings Benefit owner Long position 1,242,724,913 6.92 8.77 Limited Hengdian Association For Interest of controlled corporation Long position 1,242,724,913 6.92 8.77 Economics Corporation Guangsha Holding Group Benefit owner and interest Long position 954,655,630 5.32 6.74 Co., Ltd. of controlled corporation Mr. Lou Zhongfu Interest of controlled corporation Long position 954,655,630 5.32 6.74 Mr. Chen Xiaxin Interest of controlled corporation Long position 880,546,358 4.90 6.22 Zhejiang Provincial Energy Benefit owner Long position 841,177,752 4.68 5.94 Group Company Ltd. Minsheng Life Insurance Benefit owner Long position 803,226,036 4.47 5.67 Company Ltd. Keqiao District Shaoxing China Benefit owner and interest Long position 760,810,192 4.24 5.37 Light & Textile of controlled corporation City Market Development & Operation Co., Ltd. Shaoxing City Keqiao District Interest of controlled corporation Long position 760,810,192 4.24 5.37 State-owned Assets Investment and Operation Co., Ltd. Zhejiang Hengyi Petrochemical Benefit owner and interest Long position 748,069,283 4.17 5.28 Co., Ltd. of controlled corporation Hengyi Petrochemical Co., Ltd. Interest of controlled corporation Long position 748,069,283 4.17 5.28
60 CHINA ZHESHANG BANK CO., LTD. Changes in Shares and Information on Shareholders
H shares:
Approximate Approximate percentage of percentage the relevant of total class of Long/short Number of share capital shares Name of Shareholder Nature of interests and capacity position Shares (Shares) (%) (%) Zhejiang Provincial Seaport Benefit owner Long position 1,000,000,000 5.57 26.35 Investment & Operation Group Co., Ltd. Yancoal International (Holding) Benefit owner Long position 488,000,000 2.72 12.86 Company Limited Yanzhou Coal Mining Company Interest of controlled corporation Long position 488,000,000 2.72 12.86 Limited Yankuang Group Company Interest of controlled corporation Long position 488,000,000 2.72 12.86 Limited Shaoxing Lingyan Equity Benefit owner Long position 250,000,000 1.39 6.59 Investment Fund Partnerships (Limited Partnership) Zhejiang Lingyan Capital Interest of controlled corporation Long position 250,000,000 1.39 6.59 Management Co., Ltd Shanghai Run Kuan Investment Interest of controlled corporation Long position 250,000,000 1.39 6.59 Management Co., Ltd. Liu Yaozhong Interest of controlled corporation Long position 250,000,000 1.39 6.59 Shenzhen Pingan Dahua Interest of controlled corporation Long position 250,000,000 1.39 6.59 Huitong Wealth Management Co., Ltd. Shenzhen Qianhai Guangda Benefit owner Long position 249,999,000 1.39 6.59 Xikang Industry Fund Company (Limited Partnership) (深圳前海 光大熙康產業基金企業 （有限合夥)) Zhuji Tongrui Machinery Benefit owner Long position 208,202,000 1.16 5.49 Technology Co., Ltd. (諸暨通瑞機械科技有限公司) Zhuji Yutian Corporate Benefit owner Long position 208,202,000 1.16 5.49 Management and Consultation Co., Ltd. (諸暨裕天企業管理諮 詢有限公司) China Yinsheng Securities Custodian-corporation/approved Long position 207,760,000 1.16 5.47 Limited lending agent
INTERIM REPORT 2016 61 Changes in Shares and Information on Shareholders
Approximate Approximate percentage of percentage the relevant of total class of Long/short Number of share capital shares Name of Shareholder Nature of interests and capacity position Shares (Shares) (%) (%) Hong Kong Bao Da Financial Benefit owner Long position 207,760,000 1.16 5.47 Holdings Limited Bao Da Financial International Interest of controlled corporation Long position 207,760,000 1.16 5.47 Limited Great Sphere Developments Interest of controlled corporation Long position 207,760,000 1.16 5.47 Limited China Goldjoy Group Limited Interest of controlled corporation Long position 207,760,000 1.16 5.47 Tinmark Development Limited Interest of controlled corporation Long position 207,760,000 1.16 5.47 Yao Jianhui Inerest of controlled corporation Long position 207,760,000 1.16 5.47 SCBCN-Foreign Economy and Benefit owner Long position 199,037,000 1.11 5.24 Trade Trust Co., Ltd-Fotic Wuxingbaichuan No. 13 Unitrust Changan Assets-Yuhebaichuan Interest of controlled corporation Long position 199,037,000 1.11 5.24 Special Asset Management Plan SCBCN-Foreign Economy and Interest of controlled corporation Long position 199,037,000 1.11 5.24 Trade Trust Co., Ltd-Fotic Yuhejingming Collective Trust Plan(Trust Unit of Phase X2) China Yintai Investment Interest of controlled corporation Long position 199,037,000 1.11 5.24 Company Limited Beijing Guojun Investment Interest of controlled corporation Long position 199,037,000 1.11 5.24 Company Limited Shen Guojun Interest of controlled corporation Long position 199,037,000 1.11 5.24 Shenwan Hongyuan Group Benefit owner Long position 195,000,000 1.09 5.14 Co., Ltd. China Jianyin Investment Limited Interest of controlled corporation Long position 195,000,000 1.09 5.14 Central Huijin Investment Ltd. Interest of controlled corporation Long position 195,000,000 1.09 5.14
Save as disclosed above, our Company was not aware of any other persons (except for the Director, Supervisor and Chief Executives of our Company (as defined in Hong Kong Listing Rules)) who had any interests and short positions in our Shares and underlying shares, which was required to be disclosed to the Company pursuant to Divisions 2 and 3 of Part XV of the SFO, or pursuant to Section 336 of SFO, to be entered in the register referred to therein on June 30, 2016.
62 CHINA ZHESHANG BANK CO., LTD. Directors, Supervisors, Senior Management, Employees and Institutions
(I) Basic Information of Directors, Supervisors and Senior Management
As of the end of the reporting period, the structure of the Board of Directors, the Board of Supervisors and senior management of the Company is as follows:
The Board of Directors of our Company consists of 17 Directors, including four executive Directors: Mr. Shen Renkang, Mr. Liu Xiaochun, Ms. Zhang Luyun and Mr. Xu Renyan; seven non-executive Directors: Mr. Wang Mingde, Ms. Wang Yibing, Ms. Shen Xiaojun, Ms. Gao Qinhong, Mr. Hu Tiangao, Ms. Lou Ting and Mr. Wei Dongliang; and six independent non-executive Directors: Mr. Jin Xuejun, Mr. Tong Benli, Mr. Yuan Fang, Mr. Dai Deming, Mr. Liu Pak Wai and Mr. Zheng Jindu.
The Board of Supervisors of our Company consists of 13 Supervisors, including four shareholder representative Supervisors: Mr. Yu Jianqiang, Mr. Tao Xuegen, Mr. Zhou Yang and Mr. Huang Haibo; four Employee representative Supervisors: Mr. Zheng Jianming, Mr. Dong Zhoufeng, Mr. Ge Lixin and Mr. Zhang Rulong; and five external Supervisors: Mr. Jiang Zhihua, Mr. Yuan Xiaoqiang, Mr. Huang Zuhui, Mr. Wang Jun and Ms. Cheng Huifang.
The senior management of our Company consists of 9 members: Mr. Liu Xiaochun, Mr. Xu Renyan, Mr. Ye Jianqing, Mr. Zhang Changgong, Mr. Xu Manxuan, Mr. Wu Jianwei, Mr. Liu Long, Mr. Jiang Yulin and Mr. Feng Jiansong.
(II) The Information of the Appointment and Resign of Directors, Supervisors and Senior Management
On April 7, 2016, Mr. Zheng Xinli submitted his resignation to the Board of our Company due to the needs of other job arrangement, and has no longer been an independent non-executive Director of our Company.
On April 22, 2016, the appointment of Mr. Wu Jianwei, Mr. Liu Long and Mr. Jiang Yulin as vice presidents of the Company was approved at the fifth meeting of the fourth session of Board of the Company, and in the meantime, Mr. Chen Chunxiang was dismissed as vice president of the Company. On July 22, 2016, the CBRC approved the qualifications of Mr. Wu Jianwei and Mr. Jiang Yulin of being vice presidents of the Company.
Mr. Wu Jianwei (吳建偉) is a postgraduate and senior engineer. Mr. Wu worked in Zhejiang provincial branch, Agricultural Bank of China where he successively held the positions of vice section chief of application development section of information and technology department I, section chief of sales development department, assistant to director; he served as vice director of data operation center; he held the position of vice division chief (in charge) of e-bank division and division chief of E-bank division; general manager of E-bank department; secretary of CPC Committee and president of Wenzhou branch, Agricultural Bank of China; CPC party committee member and president assistant of Inner Mongolia Autonomous Region branch of Agricultural Bank of China and president assistant of China Zheshang Bank.
INTERIM REPORT 2016 63 Directors, Supervisors, Senior Management, Employees and Institutions
Mr. Liu Long (劉龍) is an undergraduate and senior accountant. Mr. Liu worked at finance and tax bureau of Changshan County, Zhejiang, during which period he served as vice director and CPC party member; secretary of CPC party committee of Tianma Town, Changshan County, Zhejiang; director and secretary of CPC committee of planning and economy committee of Changshan County, Zhejiang; vice director and CPC committee member of auditing bureau of Quzhou City, Zhejiang; county CPC standing committee member of Changshan County, Zhejiang, as well as vice county chief of Changshan County People’s Government; vice secretary of CPC county committee, vice county chief and vice secretary of CPC county committee, vice secretary of CPC committee of Changshan County, Zhejiang and chairman of People’s Political Consultative Conference of Changshan County, Zhejiang; director and secretary of CPC committee of the economic and information committee of Quzhou City, Zhejiang; vice secretary general and executive office director of Quzhou Municipal Government, Zhejiang. He has been the secretary of the Board of China Zheshang Bank since February 2015 and the joint company secretary of China Zheshang Bank since June 2015.
Mr. Jiang Yulin (姜雨林) is an undergraduate. Mr. Jiang successively worked as an employee of the operation department of Hangzhou branch of PBOC; vice section chief of accounting management section of accounting department, section chief of development and management section of retail business department, division chief of corporate business division IV of operation department and retail business division of Hangzhou branch, China CITIC Bank; president of Jiefang sub-branch of Hangzhou branch and Tianshui sub-branch, China CITIC Bank; president assistant of Hangzhou branch, China CITIC Bank; vice president and general manager of operation department of Hangzhou branch, China CITIC Bank; general manager of corporate banking department of China CITIC Bank; director of CITIC Financial Leasing Co., Ltd..
On June 15, 2016, the Company held the annual general meeting for 2015, at which Ms. Cheng Huifang was elected as an external Supervisor of the fourth session of the Board of Supervisors.
Ms. Cheng Huifang (程惠芳) is the holder of a doctoral degree, a professor and doctoral supervisor. Ms. Cheng successively worked as the lecturer and the vice professor of Zhejiang Chemical College and Zhejiang Institute of Technology (now known as Zhejiang University of Technology); the assistant to the president, the executive vice president and the president of College of Economics and Management, Zhejiang University of Technology. She currently acts as the president of Global Institute for Zhejiang Merchants Development, Zhejiang University of Technology and the general director of Zhejiang Institute of Financial Engineering.
On August 19, 2016, Mr. Wei Dongliang submitted his resignation to the Board of our Company due to the needs of other job arrangement, and has no longer been a non-executive Director of our Company.
On August 19, 2016, Mr. Huang Haibo submitted his resignation to the Board of Supervisors of our Company due to the needs of other job arrangement, and has no longer been a shareholder representative Supervisor of our Company.
64 CHINA ZHESHANG BANK CO., LTD. Directors, Supervisors, Senior Management, Employees and Institutions
(III) Changes of Occupations of Directors and Supervisors
Ms. Wang Yibing, a non-executive Director of the Company, acts as a non-executive director of Yongan Futures Co., Ltd. and has ceased to be the non-executive director of Zhejiang Material Industrial Zhongda Yuantong Group Co., Ltd. (浙江物產中大元通集團股份有限公司).
Mr. Dai Deming, an independent non-executive Director of the Company, acts as the independent non- executive director of BOC Aviation Limited.
Mr. Liu Pak Wai, an independent non-executive Director of the Company, has ceased to be the independent non-executive Director of Hang Lung Properties Limited (恒隆地產有限公司).
Mr. Zheng Jindu, an independent non-executive Director of the Company, acts as an independent non- executive director of Zhejiang Wonderful-wall Building Materials Co., Ltd. (墻煌新材料股份有限公司) and Sundy Land Investment Co., Ltd. (宋都基業投資股份有限公司).
(IV) Employees
At the end of the reporting period, we had 9,747 employees in total (including those dispatched outside), the number of which increased by 1,387 compared with the end of the last year. Based on the position types, 4,138 were marketing personnel, 1,320 were counter personnel, and 4,289 were mid-office and back-office personnel; based on educational levels, 1,657 obtained post-graduate degree or above (including 47 with doctorate degree), 6,544 obtained bachelor degree, and 1,546 obtained associate degree or below. All of our employees participate in basic social pension insurance, and as of the end of the reporting period, 13 employees had retired from the Company.
Following the remuneration policies that are in line with our development strategies, guided by the concept of people first, oriented to market, and equipped with comprehensive standardized management, the Company improved its remuneration management mechanism that determines the remuneration according to the salary levels based on position types, and optimized the remuneration determination mechanism that is based on individual performance and organizational performance. Focused mainly on capability and performance, we tried to establish and improve a market-oriented remuneration system that embodies internal fairness and external competitiveness, spurs development of both the employees and the Company, and emphasizes both welfare and incentives, and is based on the value of positions.
Centered on our operation and development strategies, based on the improvement of professional capabilities and operating results, and on the basis of carrying out all-staff training program, our Company highlights the cultivation of core, key and special talents and practices a variety of trainings including leadership training, business line core personnel training and training for personnel holding key positions, so as to raise the professional capabilities and quality of our employees at their positions. During the reporting period, the Bank held 706 training courses in total with 65,290 attendances.
INTERIM REPORT 2016 65 Directors, Supervisors, Senior Management, Employees and Institutions
(V) Branches
Number of Number of Name of Institution Business address Tel. No. Postal code institutions employees Headquarters No. 288, Qingchun Road, Hangzhou 95527 310006 1 1,367 Small Enterprise Credit Center No. 288, Qingchun Road, Hangzhou 0571-87659510 310006 1 37 Beijing Branch Jia 1-1, Jinrong Main Street, Xicheng 010-88006088 100033 7 504 District, Beijing Tianjin Branch No. 37, Youyi North Road, Hexi District, 022-23271223 300204 9 485 Tianjin Shenyang Branch No. 56, Qingnian main street, Shenhe 024-31259003 110014 3 187 District, Shenyang Shanghai Branch No. 567, Weihai Road, Shanghai 021-61333333 200041 10 435 Nanjing Branch No. 9, Zhongshan North Road, Gulou 025-86823636 210008 12 705 District, Nanjing Suzhou Branch Yueliangwan International Business 0512-62995527 215123 6 275 Center, No. 9, Cuiwei Street, Industrial Park Zone, Suzhou Jinan Branch No. 185, Heixi Road, Lixia District, Jinan, 0531-80961706 250011 5 424 Shandong Wuhan Branch International Financial Center, No. 296, 027-85331510 430000 1 126 Xinhua Road, Jianghan District, Wuhan, Hubei Guangzhou Branch No. 921, Guangzhou South Avenue, 020-89299999 510220 1 173 Haizhu District, Guangzhou Shenzhen Branch Times Science and Technology Mansion, 0755-82760666 518040 6 364 No. 7028, Shennan Avenue, Futian District, Shenzhen Chongqing Branch Xingguang Building Block A, No. 1, 023-88280800 401121 4 296 Xingguang Avenue, New Liang Jiang Zone, Chongqing Chengdu Branch No. 39, Ximianqiao Street, Wuhou 028-85579955 610041 8 397 District, Chengdu Xi’an Branch No. 311, West Avenue, Xi’an 029-88121212 710002 7 413 Lanzhou Branch No. 308, Baiyin Road, Chengguan District, 0931-8172110 730030 4 298 Lanzhou Hangzhou Branch No. 736, Jianguo North Road, Hangzhou 0571-87330733 310004 27 1,553 Ningbo Branch No. 739, Zhongxing Road, Jiangdong 0574-81855678 315040 11 550 District, Ningbo Wenzhou Branch Zhongtong Building, No. 319, Xincheng 0577-88079900 325001 8 417 Avenue, Wenzhou Shaoxing Branch No. 1418, Jinkeqiao Avenue, Keqiao 0575-81166066 312030 7 345 District, Shaoxing Yiwu Branch South Hall F-zone, International Business 0579-85190218 322000 5 297 & Trade Mansion Phase 2, Shangcheng Avenue, Yiwu, Zhejiang Zhoushan Branch Pavilion 2, No. 111, Haiyu Road, Lincheng 0580-2260302 316021 2 99 Town, Zhoushan Total 145 9,747
66 CHINA ZHESHANG BANK CO., LTD. Significant Events
(I) Purchase and Sale and Redemption of Securities
During the reporting period, the Company did not purchase, sell or redeem any of the Company’s listed securities.
(II) Use of Proceeds
The Company was listed on Hong Kong Stock Exchange on March 30, 2016 with the stock code of 2016, and fully exercised Over-allotment Option on April 19, 2016. The number of shares in the global offering was 3,795,000,000 H shares (comprising 3,450,000,000 new H shares offered by the Company and 345,000,000 sale shares sold by the selling shareholders); the offer price was HK$3.96 per H share, and the nominal value was RMB1.00 per H share; the net proceeds amounted to approximately HK$13.334 billion.
According to the usage disclosed in the prospectus, the proceeds are used for supplementing the Company’s capital to meet the needs for sustained growth of our businesses and support the continuous, rapid and sound development of our businesses.
(III) Material litigations and Arbitrations
The Company was involved in certain legal proceedings in the ordinary course of business. Most of these litigations are filed by the Company in order to recover non-performing loans and include litigations because of disputes with customers. As of June 30, 2016, there were five pending litigations to which the Company was a defendant with a total amount of RMB23.0532 million claimed. The Company expects that such pending litigations will not materially and adversely affect the Company’s business, financial position or operating results.
(IV) Material Related Party Transactions
During the reporting period, the Company did not have any material related party transactions. For related party transactions within the meaning of accounting standards, please see “Notes to the Financial Statements-36 Related Party Transactions”.
(V) Material Contracts and Their Performance
Significant events relating to custody, contracting and leasing
During the reporting period, none of the material contracts signed by the Company involved holding in custody, contracting or leasing any assets of other companies or vice versa beyond the normal business scope of a bank.
INTERIM REPORT 2016 67 Significant Events
Significant guarantees
Guarantee business is an ordinary business of the Company. During the reporting period, save for the financial guarantee business carried out by the Company within the business scope approved by the PBOC and the CBRC, there were no other significant guarantees required to be disclosed.
(VI) Material Purchase, Sale or Disposal of Assets and Corporate Mergers
The Company did not carry out any material purchase, sale or disposal of assets, or corporate mergers during the reporting period.
(VII) Stock Incentive Plan
The Company did not implement any stock incentive plan.
(VIII) Interests Owned by the Directors, Chief Executives and Supervisors in the Company
As of June 30, 2016, except as disclosed in this report, none of the Company’s Directors, chief executives, Supervisors or their respective associates had interests or short positions in the shares, underlying shares or debentures of the Company or its associated corporations (within the meaning of Part XV of Hong Kong SFO) which were required to be recorded in the register required to be kept under Section 352 of Hong Kong SFO or notified to the Company and the Hong Kong Stock Exchange pursuant to the Model Code.
(IX) Disciplinary Actions Imposed on the Company or its Directors, Supervisors, Senior Management and Shareholders Holding 5% or More Shares in the Company
During the reporting period, none of the Company or its Directors, Supervisors, senior management or Shareholders holding 5% or more shares in the Company have experienced any investigation, administrative penalties or informed criticism from CSRC and any public reprimand from the stock exchange, or have been imposed any penalty by other regulatory authorities that would have material impact on the Company’s operation.
68 CHINA ZHESHANG BANK CO., LTD. Significant Events
(X) Review of the Interim Results
PricewaterhouseCoopers, the external auditor of the Company, has reviewed the interim financial report of the Company which was prepared under the disclosure requirements of International Accounting Standards and Hong Kong Listing Rules.
The interim report of the Company has been reviewed and approved by the Audit Committee of the Board of Directors of the Company.
(XI) Publishing the Interim Report
The English and Chinese version of the interim report prepared by the Company in accordance with IFRSs and Hong Kong Listing Rules can be available on the website of Hong Kong Stock Exchange and the Company’s website.
INTERIM REPORT 2016 69 Report on Review of Interim Financial Information
TO THE BOARD OF DIRECTORS OF BANK OF ZHESHANG CO., LTD. (A joint stock company incorporated in the People’s Republic of China with limited liability)
Introduction
We have reviewed the condensed interim financial information set out on pages 71 to 124, which comprises the condensed statement of financial position of Bank of Zheshang Co., Ltd (the “Bank”) as at June 30, 2016 and the related condensed statements of comprehensive income, changes in equity and cash flows for the six-month period then ended, and a summary of significant accounting policies and other explanatory notes. The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited require the preparation of a report on interim financial information to be in compliance with the relevant provisions thereof and International Accounting Standard 34 “Interim Financial Reporting”. The directors of the Bank are responsible for the preparation and presentation of this interim financial information in accordance with International Accounting Standard 34 “Interim Financial Reporting”. Our responsibility is to express a conclusion on this interim financial information based on our review and to report our conclusion solely to you, as a body, in accordance with our agreed terms of engagement and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.
Scope of Review
We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the interim financial information is not prepared, in all material respects, in accordance with International Accounting Standard 34 “Interim Financial Reporting”.
PricewaterhouseCoopers Certified Public Accountants
Hong Kong, 19 August 2016
70 CHINA ZHESHANG BANK CO., LTD. Condensed Statement of Comprehensive Income (All amounts expressed in thousands of RMB unless otherwise stated)
I FINANCIAL INFORMATION OF THE BANK
Six months ended June 30, Note 2016 2015 Interest income 3 26,663,469 21,054,413 Interest expense 3 (14,701,633) (11,950,708)
Net interest income 11,961,836 9,103,705
Fee and commission income 4 3,297,004 1,480,849 Fee and commission expense 4 (90,351) (44,420)
Net fee and commission income 3,206,653 1,436,429
Net trading gains/(losses) 5 192,450 (246,503) Net gains on financial investments 6 584,230 224,850 Other operating income 7 19,206 15,053
Operating income 15,964,375 10,533,534
Operating expenses 8 (4,589,093) (3,199,004) Impairment losses on assets 10 (5,129,298) (2,926,226)
Operating profit 6,245,984 4,408,304
Profit before income tax 6,245,984 4,408,304
Income tax expense 11 (1,511,162) (1,082,628)
Net profit attributable to shareholders of the Bank 4,734,822 3,325,676
Other comprehensive income Items that may be reclassified subsequently to profit or loss: Fair value changes on available-for-sale financial assets (468,204) 44,800 Related income tax impact 117,050 (11,200)
Total other comprehensive income, net of tax (351,154) 33,600
Total comprehensive income attributable to shareholders of the Bank 4,383,668 3,359,276
Basic and diluted earnings per share for profit attributable to the shareholders of the Bank (in RMB yuan) 12 0.29 0.29
Shen Renkang Liu Xiaochun Liu Long Chairman of Board President Chief Financial Officer
INTERIM REPORT 2016 71 Condensed Statements of Financial Position (All amounts expressed in thousands of RMB unless otherwise stated)
June 30, December 31, Note 2016 2015 ASSETS Cash and balances with central bank 13 103,270,087 87,649,741 Precious metal – 1,848 Due from banks and other financial institutions 14 45,978,813 76,607,447 Financial assets at fair value through profit or loss 15 13,890,252 10,795,291 Derivative financial assets 16 1,043,314 458,534 Loans and advances to customers 17 398,067,529 335,228,940 Financial investments 18 – Available-for-sale 60,298,720 49,117,403 – Held-to-maturity 37,252,071 29,042,163 – Debt instruments classified as receivables 509,872,296 431,893,606 Property, plant and equipment 19 2,510,150 2,444,632 Deferred income tax assets 20 2,893,621 2,105,271 Other assets 21 6,557,610 6,305,510
Total assets 1,181,634,463 1,031,650,386
LIABILITIES Due to banks and other financial institutions 22 334,622,162 354,657,357 Financial liabilities at fair value through profit or loss 24 12,136,371 500,020 Derivative financial liabilities 16 1,073,354 634,747 Customer deposits 23 644,554,993 516,026,296 Income tax payable 1,136,991 1,594,734 Other liabilities 26 26,422,562 18,644,132 Debt securities issued 25 98,561,446 89,936,036
Total liabilities 1,118,507,879 981,993,322
EQUITY Share capital 27 17,959,697 14,509,697 Capital reserve 27 20,151,780 12,181,167 Surplus reserve 28 2,775,091 2,775,091 Statutory general reserve 28 13,242,456 8,241,258 Investment revaluation reserve 29 607,294 958,448 Retained earnings 8,390,266 10,991,403
Total equity 63,126,584 49,657,064
Total liabilities and equity 1,181,634,463 1,031,650,386
Shen Renkang Liu Xiaochun Liu Long Chairman of Board President Chief Financial Officer
72 CHINA ZHESHANG BANK CO., LTD. Condensed Statements of Changes In Equity (All amounts expressed in thousands of RMB unless otherwise stated)
Statutory Investment Share Capital Surplus general revaluation Retained capital reserve reserve reserve reserve earnings Total (Note 27) (Note 27) (Note 28) (Note 28) (Note 29) Balance at January 1, 2016 14,509,697 12,181,167 2,775,091 8,241,258 958,448 10,991,403 49,657,064 Net profit for the period – – – – – 4,734,822 4,734,822 Other comprehensive income for the period – – – – (351,154) – (351,154)
Total comprehensive income – – – – (351,154) 4,734,822 4,383,668 Issuance of new shares 3,450,000 7,970,613 – – – – 11,420,613 Appropriation to statutory general reserve – – – 5,001,198 – (5,001,198) – Cash dividend – – – – – (2,334,761) (2,334,761)
Balance at June 30, 2016 17,959,697 20,151,780 2,775,091 13,242,456 607,294 8,390,266 63,126,584
Balance at January 1, 2015 11,506,872 6,535,858 2,070,022 4,639,490 150,380 8,247,550 33,150,172 Net profit for the year – – – – – 7,050,690 7,050,690 Other comprehensive income for the year – – – – 808,068 – 808,068
Total comprehensive income – – – – 808,068 7,050,690 7,858,758 Issuance of new shares 3,002,825 5,645,309 – – – – 8,648,134 Appropriation to statutory surplus reserve – – 705,069 – – (705,069) – Appropriation to statutory general reserve – – – 3,601,768 – (3,601,768) –
Balance at December 31, 2015 14,509,697 12,181,167 2,775,091 8,241,258 958,448 10,991,403 49,657,064
Shen Renkang Liu Xiaochun Liu Long Chairman of Board President Chief Financial Officer
INTERIM REPORT 2016 73 Condensed Statements of Cash Flows (All amounts expressed in thousands of RMB unless otherwise stated)
Six months ended June 30, Note 2016 2015 Cash flows from operating activities Profit before income tax 6,245,984 4,408,304 Adjustments: Depreciation and amortization 8 113,885 101,951 Impairment losses on loans 10 3,666,973 2,539,069 Impairment losses on other assets 10 1,462,325 387,157 Net gains on de-recognition of financial investments (584,230) (224,850) Fair value changes in financial assets at fair value through profit or loss and derivatives 25,256 51,753 Interest income from financial investments 3 (14,363,494) (8,703,588) Interest expense from debt securities issued 3 1,721,908 1,461,538
Net change in operating assets and operating liabilities: Net increase in restricted deposit balances with central bank (13,894,809) (9,775,259) Net decrease in due from banks and other financial institutions 41,686,624 15,391,970 Net increase in financial assets at fair value through profit or loss (3,272,449) (3,463,729) Net increase in loans and advances to customers (66,510,166) (57,270,570) Net increase in other operating assets (481,951) (824,028) Net change in due to banks and other financial institutions (20,035,195) 95,548,961 Net increase in customer deposits 128,528,697 82,529,858 Net increase in other operating liabilities 16,797,673 3,828,461
Cash from operating activities before tax 81,107,031 125,986,998
Income tax paid (2,640,205) (1,413,732)
Net cash from operating activities 78,466,826 124,573,266
Cash flows from investing activities: Purchase of property and equipment, intangible assets and other long-term assets (149,563) (77,922) Interest income from financial investments 14,391,572 8,703,588 Proceeds from disposal and redemption of financial investments 421,577,058 213,376,829 Purchase of financial investments (520,232,903) (379,439,628)
Net cash used in investing activities (84,413,836) (157,437,133)
74 CHINA ZHESHANG BANK CO., LTD. Condensed Statements of Cash Flows (All amounts expressed in thousands of RMB unless otherwise stated)
Six months ended June 30, Note 2016 2015 Cash flows from financing activities: Proceeds from issuance of ordinary shares 11,420,613 8,648,134 Proceeds from issuance of debt securities 86,237,502 44,793,918 Cash paid for repayment of debt securities (78,760,000) (21,931,040) Interest paid on debt securities issued (323,397) (761,869) Dividends paid on ordinary shares (22,665) –
Net cash from financing activities 18,552,053 30,749,143
Effect of exchange rate changes on cash and cash equivalents 178,484 920
Net increase/(decrease) in cash and cash equivalents 12,783,527 (2,113,804)
Cash and cash equivalents at beginning of the period 18,995,308 17,207,750
Cash and cash equivalents at end of the period 35 31,778,835 15,093,946
Net cash flows from operating activities including: Interest received 12,685,326 12,111,250
Interest paid (13,553,113) (9,629,065)
Shen Renkang Liu Xiaochun Liu Long Chairman of Board President Chief Financial Officer
INTERIM REPORT 2016 75 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
1 GENERAL
China Zheshang Bank Co., Ltd. (“the Bank”) is a national joint-stock commercial bank which was established in Zhejiang Province, the People’s Republic of China (the “PRC”) on July 26, 2004 with the approval from China Banking Regulatory Commission (“CBRC”).
As of June 30, 2016, the registered capital of the Bank is Renminbi (“RMB”) 17,959,696,778.
As of June 30, 2016, the Bank has established 144 branch outlets in 13 provinces (municipalities) of Mainland China, including 38 branches (21 of them are tier-one branches), 1 branch-level specialized institution and 105 sub-branches. The principal activities of the Bank include corporate and personal deposits, loans and advances, clearing and settlement service, treasury business and other banking service as approved by the CBRC.
These financial statements have been approved by the Bank’s Board of Directors on August 19, 2016.
2 PRINCIPAL ACCOUNTING POLICIES AND CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS IN APPLYING ACCOUNTING POLICIES
The condensed interim financial information of the Bank has been prepared in accordance with the International Accounting Standard 34 “Interim Financial Reporting” and disclosure requirements of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, which should be read in conjunction with the audited financial statements for the year ended December, 2015.
Except as described below, the adoption of the accounting policy and critical accounting estimates and judgements in applying accounting policies of the condensed interim financial information is the same as that adopted in the financial report for the year ended December, 2015.
New and revised IFRSs effective by 1 January 2016 applied by the bank:
Amendment to IFRS 11 Accounting for acquisitions of interests in joint operation IFRS 14 Regulatory deferral accounts Amendments to IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortization Amendments to IFRS 10 and IAS 28 Sale or contribution of assets between an investor and its associate or joint venture Amendments to IFRSs Annual improvements to IFRSs (2012 – 2014 cycle) Amendments to IFRS 10, IFRS 12 Investment entities: applying the consolidation exception and IAS 28 Amendments to IAS 1 Disclosure initiative
The adoption of these new standards and amendments does not have a significant impact on the operating result, comprehensive income, or financial position of the bank.
76 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
3 NET INTEREST INCOME
Six months ended June 30, 2016 2015 Interest income Financial investments 14,363,494 8,703,588 Loans and advances to customers 10,223,271 9,006,779 Due from banks and other financial institutions 1,105,632 2,640,925 Balances with central bank 686,631 560,144 Financial assets at fair value through profit or loss 284,441 142,977
Subtotal 26,663,469 21,054,413
Including: Interest income from impaired financial assets 48,455 50,374
Interest expense Due to banks and other financial institutions (6,782,027) (5,375,461) Customer deposits (6,197,698) (5,113,709) Debt securities issued (1,721,908) (1,461,538)
Subtotal (14,701,633) (11,950,708)
Net interest income 11,961,836 9,103,705
Interest income from listed financial investments (i) 1,860,513 1,198,027
Interest income from unlisted financial investments 12,502,981 7,505,561
(i) Interest income from listed financial investments is principally derived from debt securities traded within China domestic interbank bond market.
INTERIM REPORT 2016 77 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
4 NET FEE AND COMMISSION INCOME
Six months ended June 30, 2016 2015 Fee and commission income Wealth management business 2,260,518 348,845 Credit commitment 283,331 246,044 Underwriting service 249,393 151,452 Agency service 211,410 566,572 Custodian service 71,391 66,366 Settlement business 62,153 33,810 Others 158,808 67,760
Total 3,297,004 1,480,849
Fee and commission expense (90,351) (44,420)
Net fee and commission income 3,206,653 1,436,429
5 NET TRADING GAINS/(LOSSES)
Six months ended June 30, 2016 2015 Net gains/(losses) from: Exchange differences 157,275 (89,312) Derivative financial instruments 102,100 (204,389) Trading financial assets (66,925) 47,198
Total 192,450 (246,503)
78 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
6 NET FINANCIAL INVESTMENT GAINS
Six months ended June 30, 2016 2015 Net gains from: Net gains arising from de-recognition of available-for-sale 333,548 224,850 Investment gains on the sale of bond 136,308 – Net gains arising from disposals of discounted bills (i) 99,629 – Others 14,745 –
Total 584,230 224,850
(i) The Bank updated its acceptance system and changed the accounting treatment of the gain or loss arising from the disposal of discounted bills in 2016. After the system update, the difference between the unamortized discounted interest income and rediscounted interest costs is recognized as disposal gain or loss, while it was recognized as interest income in prior years.
7 OTHER OPERATING INCOME
Six months ended June 30, 2016 2015 Government grants 2,219 2,263 Gains on disposal of fixed assets 107 187 Other miscellaneous income 16,880 12,603
Total 19,206 15,053
INTERIM REPORT 2016 79 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
8 OPERATING EXPENSES
Six months ended June 30, 2016 2015 Staff costs (including directors and supervisors’ emoluments) (Note 9) 2,819,088 1,571,720 General and administrative expenses 885,979 737,781 Business tax and surcharges 552,117 605,827 Rental expenses 200,593 164,294 Depreciation of property, plant and equipment (Note 19) 64,852 59,680 Amortization of long-term prepaid expenses 30,282 25,923 Amortization of land use rights (Note 21(ii)) 5,678 5,678 Amortization of intangible assets (Note 21(iii)) 13,073 10,670 Donations 2,011 935 Others 15,420 16,496
Total 4,589,093 3,199,004
9 STAFF COSTS (including directors and supervisors’ emoluments)
Six months ended June 30, 2016 2015 Salaries and bonuses 2,324,567 1,215,335 Pension costs – Defined contribution plans 256,133 189,992 Housing funds 76,203 53,330 Labor union fee and staff education expenses 49,382 25,253 Other social security and benefit costs 112,803 87,810
Total 2,819,088 1,571,720
80 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
10 IMPAIRMENT LOSSES ON ASSETS
Six months ended June 30, 2016 2015 Loans and advances to customers (Note 17(b)) – Collectively assessed 2,132,032 1,648,928 – Individually assessed 1,534,941 890,141 Debt instruments classified as receivables 1,462,387 382,808 Others (62) 4,349
Total 5,129,298 2,926,226
11 INCOME TAX EXPENSE
Six months ended June 30, 2016 2015 Current income tax 2,182,462 1,429,816 Deferred income tax (Note 20) (671,300) (347,188)
Total 1,511,162 1,082,628
Current income tax is calculated based on the statutory rate of 25% of the taxable income of the Bank for the respective periods.
The difference between the actual income tax charged in the profit or loss and the amounts which would result from applying the enacted tax rate to profit before income tax can be reconciled as follows:
Six months ended June 30, 2016 2015 Profit before income tax 6,245,984 4,408,304
Tax calculated at a tax rate of 25% 1,561,496 1,102,076 Tax effect arising from income not subject to tax (i) (76,047) (28,655) Tax effect of expenses that are not deductible for tax purposes (ii) 25,713 9,207
Income tax expense 1,511,162 1,082,628
(i) The income not subject to tax mainly represents interest income arising from treasury bonds, which is income tax free in accordance with the PRC tax regulations.
(ii) The expenses that are not tax deductible for tax purposes mainly represent certain expenditures, such as entertainment expenses and so forth, which exceed the tax deduction limits pursuant to the relevant PRC tax regulations.
INTERIM REPORT 2016 81 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
12 BASIC AND DILUTED EARNINGS PER SHARE
(a) Basic earnings per share are calculated by dividing the net profit attributable to shareholders of the Bank by the weighted average number of ordinary shares in issue during the periods.
Six months ended June 30, 2016 2015 Net profit attributable to shareholders of the Bank (in RMB thousands) 4,734,822 3,325,676
Weighted average number of ordinary shares in issue (in thousands) 16,199,257 11,540,052
Basic earnings per share (in RMB yuan) 0.29 0.29
(b) Diluted earnings per share
For the six months ended June 30 2016, there were no potential diluted ordinary shares, so the diluted earnings per share were the same as the basic earnings per share.
13 CASH AND BALANCES WITH CENTRAL BANK
June 30, December 31, 2016 2015 Cash 245,018 237,660 Mandatory reserve deposits with central bank (i) 89,447,541 75,555,586 Surplus reserve deposits with central bank (ii) 13,574,285 11,856,106 Fiscal deposits 3,243 389
Total 103,270,087 87,649,741
82 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
13 CASH AND BALANCES WITH CENTRAL BANK (continued)
(i) The Bank is required to place mandatory reserve deposits and mandatory reserve for forward exchange deposits with the People’s Bank of China (“PBOC”).These mandatory reserve are not available for use in the daily business of the Bank.
As of June 30, 2016, the mandatory reserve deposit rates of the Bank were as follows:
June 30, December 31, 2016 2015 Mandatory reserve rate for deposits denominated in RMB 14.5% 15% Mandatory reserve rate for deposits denominated in foreign currencies 5% 5% Mandatory reserve rate for forward exchange deposits 20% 20%
(ii) Surplus reserve deposits maintained with the PBOC are mainly for settlement purpose.
(iii) The calculation function of the mandatory reserve for forward exchange deposits is the product of the forward exchange contractual amounts and the mandatory reserve rate for forward exchange deposits.
14 DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
June 30, December 31, 2016 2015 Deposits with banks and other financial institutions 43,166,291 32,749,538 Securities purchased under resale agreements 2,011,236 29,051,000 Placements with banks and other financial institutions 801,286 696,097 Notes purchased under resale agreements – 14,110,812
Total 45,978,813 76,607,447
INTERIM REPORT 2016 83 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
15 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
June 30, December 31, 2016 2015 Government bonds – Listed outside Hong Kong 820,561 1,369,283 Other debt securities – Listed outside Hong Kong 13,069,691 9,426,008
Total 13,890,252 10,795,291
As of June 30, 2016, all financial assets at fair value through profit or loss of the Bank are held for trading.
As of June 30, 2016, no financial assets at fair value through profit or loss were pledged to other banks under any repurchase agreements.
Debt securities traded within China domestic interbank bond market are included under the category of “Listed outside Hong Kong”.
Financial assets at fair value through profit or loss analyzed by categories of the issuer are as follows:
June 30, December 31, 2016 2015 Debt securities Issuers in the PRC – Corporates 7,055,423 4,716,113 – Banks and other financial institutions 6,014,268 4,709,895 – Government 820,561 1,369,283
Total 13,890,252 10,795,291
84 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
16 DERIVATIVE FINANCIAL INSTRUMENTS
Below listed the nominal value and fair value of derivative financial instruments held for trading:
Fair value Nominal value Asset Liability June 30, 2016 Swap contract 329,761,427 1,004,200 (992,269) Option contract 7,515,543 33,329 (59,925) Forward contract 1,139,081 5,785 (21,160)
Total 338,416,051 1,043,314 (1,073,354)
December 31, 2015 Swap contract 170,140,599 441,958 (614,817) Option contract 324,680 3,424 (1,854) Forward contract 1,563,225 13,152 (18,076)
Total 172,028,504 458,534 (634,747)
17 LOANS AND ADVANCES TO CUSTOMERS
(a) Loans and advances to customers
June 30, December 31, 2016 2015 Corporate loans and advances – Loans and advances 292,583,089 242,484,549 – Discounted bills 45,415,455 39,827,199
Subtotal 337,998,544 282,311,748
Personal loans and advances – Personal business 65,521,684 60,304,266 – Residential mortgage loans 4,945,984 2,204,489 – Others 2,156,281 602,358
Subtotal 72,623,949 63,111,113
Total 410,622,493 345,422,861
Less: allowance for impairment losses – Collectively assessed (9,941,839) (8,340,569) – Individually assessed (2,613,125) (1,853,352)
Total (12,554,964) (10,193,921)
Loans and advances to customers – net 398,067,529 335,228,940
INTERIM REPORT 2016 85 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(b) Movements on allowance for losses on loans and advances to customers listed by assessment method
Six months ended 30, 2016 Year ended 31, 2015 Collective Individual Collective Individual impairment impairment impairment impairment Balance at beginning of the period/year 8,340,569 1,853,352 6,126,006 584,202
Net impairment allowances charged to profit or loss (Note 10) 2,132,032 1,534,941 3,206,972 2,950,371 Unwinding of discount on allowance (34,309) (14,146) (51,290) (12,186) Write-offs (345,210) (206,763) (627,127) (495,705) Transfer out (178,762) (579,799) (355,558) (1,215,028) Recoveries 24,711 25,540 38,570 41,698 Exchange differences 2,808 – 2,996 –
Balance at end of the period/year 9,941,839 2,613,125 8,340,569 1,853,352
(c) Movements on allowance for losses on loans and advances to customers listed by customer category
Six months ended 30, 2016 Year ended 31, 2015 Corporate loans Personal loans Corporate loans Personal loans and advances and advances and advances and advances Balance at beginning of the period/year 8,592,129 1,601,792 5,413,168 1,297,040
Net impairment allowances charged to profit or loss 3,212,766 454,207 5,655,375 501,968 Unwinding of discount on allowance (31,073) (17,382) (41,124) (22,352) Write-offs (350,417) (136,870) (921,206) (201,626) Transfer out (823,247) – (1,570,586) – Recoveries 28,248 22,003 53,506 26,762 Exchange differences 2,808 – 2,996 –
Balance at end of the period/year 10,631,214 1,923,750 8,592,129 1,601,792
86 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(d) Loans listed by assessment method for allowance
June 30, 2016
Identified impaired loans and advances (ii) Loans and advances for which for which for which allowance is allowance is allowance is collectively collectively individually assessed (i) assessed assessed Subtotal Total Corporate loans and advances 333,317,744 931,149 3,749,651 4,680,800 337,998,544 Personal loans and advances 71,828,687 795,262 – 795,262 72,623,949 Allowance for impairment losses (9,183,939) (757,900) (2,613,125) (3,371,025) (12,554,964)
Loans and advances to customers, net 395,962,492 968,511 1,136,526 2,105,037 398,067,529
December 31, 2015
Identified impaired loans and advances (ii) Loans and advances for which for which for which allowance is allowance is allowance is collectively collectively individually assessed (i) assessed assessed Subtotal Total Corporate loans and advances 278,587,473 930,767 2,793,508 3,724,275 282,311,748 Personal loans and advances 62,602,479 508,634 – 508,634 63,111,113 Allowance for impairment losses (7,723,937) (616,632) (1,853,352) (2,469,984) (10,193,921)
Loans and advances to customers, net 333,466,015 822,769 940,156 1,762,925 335,228,940
(i) Loans and advances for which allowance is collectively assessed consist of loans and advances which have not been identified as impaired.
(ii) Identified impaired loans and advances include loans for which objective evidence of impairment exists and have been identified as bearing impairment losses, which are measured either individually or collectively.
INTERIM REPORT 2016 87 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(e) Analysis of loans and advances to customers by industry
June 30, 2016 December 31, 2015 Amount % Amount % Corporate loans and advances Manufacturing 59,516,487 14.49 50,795,800 14.71 Wholesale and retail trade 52,890,851 12.88 36,978,096 10.71 Leasing and commercial services 49,974,779 12.17 37,390,404 10.83 Real estate 43,580,067 10.61 39,878,330 11.55 Construction 24,118,198 5.87 21,415,271 6.20 Administration of water conservancy, environment and public facilities 21,727,853 5.29 21,764,906 6.30 Transportation, storage and postal service 7,415,965 1.81 6,540,180 1.89 Financing 6,113,035 1.49 5,931,548 1.72 Electricity, gas and water production and supply 6,066,505 1.48 3,774,675 1.09 Mining 4,672,682 1.14 3,985,721 1.15 Public administration and social organisations 3,608,560 0.88 2,517,500 0.73 Accommodation and catering 3,296,989 0.80 3,856,737 1.12 Culture, sports and entertainment 2,583,623 0.63 2,185,286 0.63 Information transmission, computer services and software 2,017,086 0.49 1,471,659 0.43 Agriculture, forestry, animal husbandry and fishery 1,606,690 0.39 1,596,036 0.46 Household services and other services 1,480,314 0.36 1,052,171 0.30 Scientific research, technology services and geological prospecting 1,100,135 0.27 527,852 0.15 Education 410,600 0.10 397,152 0.11 Health, social security and social welfare 402,670 0.10 425,225 0.12 Discounted bills 45,415,455 11.06 39,827,199 11.53
Total corporate loans and advances 337,998,544 82.31 282,311,748 81.73
Personal loans and advances Personal business 65,521,684 15.96 60,304,266 17.46 Residential mortgage loans 4,945,984 1.20 2,204,489 0.64 Others 2,156,281 0.53 602,358 0.17
Total personal loans and advances 72,623,949 17.69 63,111,113 18.27
Gross amount of loans and advances before allowance for impairment 410,622,493 100.00 345,422,861 100.00
88 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(f) Analysis of loans and advances to customers by security type (Gross amount)
June 30, December 31, 2016 2015 Collateralized loans 161,051,322 149,906,362 Guaranteed loans 108,728,688 90,575,061 Pledged loans 55,380,900 40,865,811 Unsecured loans 40,046,128 24,248,428 Discounted bills 45,415,455 39,827,199
Total 410,622,493 345,422,861
(g) Analysis of loans and advances to customers by geographical areas (Gross amount)
June 30, 2016 December 31, 2015 Amount % Amount % East China 225,732,592 54.97 200,043,980 57.91 North China 81,179,174 19.77 65,892,661 19.08 West China 76,834,107 18.71 54,167,679 15.68 South China 26,876,620 6.55 25,318,541 7.33
Total 410,622,493 100.00 345,422,861 100.00
(h) Analysis of loans and advances to customers by overdue and impaired status
June 30, 2016 December 31, 2015 Corporate Personal Corporate Personal loans and loans and loans and loans and advances advances advances advances Neither overdue nor impaired 332,171,425 71,206,632 277,065,957 61,858,044 Overdue but not impaired 1,146,319 622,055 1,521,516 744,435 Impaired 4,680,800 795,262 3,724,275 508,634
Gross 337,998,544 72,623,949 282,311,748 63,111,113 Less: Collective impairment allowances (8,018,089) (1,923,750) (6,738,777) (1,601,792) Individual impairment allowances (2,613,125) – (1,853,352) –
Total allowance (10,631,214) (1,923,750) (8,592,129) (1,601,792)
Net 327,367,330 70,700,199 273,719,619 61,509,321
INTERIM REPORT 2016 89 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(i) Loans and advances neither overdue nor impaired
The credit risk of the portfolio of loans and advances that was neither overdue nor impaired can be assessed by reference to the five-category system of CBRC adopted.
June 30, 2016 Five categories of loan classification Special- Pass mention Total Corporate loans and advances 325,444,836 6,726,589 332,171,425 Personal loans and advances 70,999,224 207,408 71,206,632
Total 396,444,060 6,933,997 403,378,057
December 31, 2015 Five categories of loan classification Special- Pass mention Total Corporate loans and advances 272,786,370 4,279,587 277,065,957 Personal loans and advances 61,673,669 184,375 61,858,044
Total 334,460,039 4,463,962 338,924,001
(j) Loans and advances overdue but not impaired
June 30, 2016 up to 30-60 60-90 over 30 days days days 90 days Total Corporate loans and advances 384,343 329,115 111,123 321,738 1,146,319 Personal loans and advances 191,090 89,322 64,537 277,106 622,055
Total 575,433 418,437 175,660 598,844 1,768,374
December 31, 2015 up to 30-60 60-90 over 30 days days days 90 days Total Corporate loans and advances 767,367 160,260 327,045 266,844 1,521,516 Personal loans and advances 122,485 116,857 100,067 405,026 744,435
Total 889,852 277,117 427,112 671,870 2,265,951
90 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(k) Loans and advances that is impaired
The breakdown of the gross amount of impaired loans and advances by class, along with the fair value of related collateral held by the Bank as security, were as follows:
June 30, December 31, 2016 2015 Corporate loans and advances 4,680,800 3,724,275 Personal loans and advances 795,262 508,634
Total 5,476,062 4,232,909
Fair value of collaterals Corporate loans and advances 3,963,743 2,396,817 Personal loans and advances 1,389,896 789,096
Total 5,353,639 3,185,913
The fair value of collateral is estimated based on the latest external valuations available and adjusted by the experience of realization of the current collateral and the market conditions.
(l) Loans and advances rescheduled
Reorganizing activities include approval of debtor repayment plans, modification and deferral of payments. Following reorganizing, a previously overdue customer account is reset to a normal status and managed together with other similar accounts. These policies and practices are based on indicators or criteria which, in the judgment of management, indicate that payment will most likely continue to be made. These policies are under continuous review. The rescheduled loan balances of the Bank were as follows:
June 30, December 31, 2016 2015 Loans and advances rescheduled 306,693 77,490
INTERIM REPORT 2016 91 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
17 LOANS AND ADVANCES TO CUSTOMERS (continued)
(m) Overdue loans and advances by overdue days and security type:
June 30, 2016 up to 90 days over 90 days to 1 year 1-3 years 3 years Total Collateralized 981,250 1,910,938 725,476 5,438 3,623,102 Guaranteed 691,770 1,505,866 595,147 14,639 2,807,422 Pledged 93,785 133,563 13,333 – 240,681 Unsecured 33,200 41,955 400 88,421 163,976
Total 1,800,005 3,592,322 1,334,356 108,498 6,835,181
December 31, 2015 up to 90 days over 90 days to 1 year 1-3 years 3 years Total Collateralized 1,343,494 1,518,289 547,450 14,374 3,423,607 Guaranteed 1,165,748 1,093,870 411,372 – 2,670,990 Pledged 47,320 60,011 480 – 107,811 Unsecured 17,730 3,340 88,421 – 109,491
Total 2,574,292 2,675,510 1,047,723 14,374 6,311,899
92 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
18 FINANCIAL INVESTMENTS
June 30, December 31, 2016 2015 Available-for-sale financial assets Listed outside Hong Kong – Debt securities 59,148,377 48,072,368 – Interbank certificates of deposit 1,125,343 1,020,035
Unlisted – Equity securities 25,000 25,000
Total 60,298,720 49,117,403
Held-to-maturity investments Listed outside Hong Kong – Debt securities 37,252,071 29,042,163
Debt instruments classified as receivables Unlisted – Trust plans and asset management plans sponsored by other financial institutions (i) 468,111,279 251,104,038 – Wealth management products sponsored by banks 43,536,669 177,613,646 – Interbank forfaiting (ii) 897,793 4,786,979 – Debt securities 400,000 –
Total 512,945,741 433,504,663
Less: Allowance for impairment losses (3,073,445) (1,611,057)
Debt instruments classified as receivables – Net 509,872,296 431,893,606
Debt instruments traded within China domestic interbank bond market are included under the category of “Listed outside Hong Kong”.
(i) Trust plans and asset management plans by security type:
June 30, December 31, 2016 2015 Interbank credit 286,312,610 136,111,168 Pledged by certificates of deposit 98,357,657 67,440,353 Guaranteed by third-party companies 44,302,967 28,194,900 Collateralized by properties 21,244,653 7,572,675 Unsecured 17,893,392 11,784,942
Total 468,111,279 251,104,038
INTERIM REPORT 2016 93 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
18 FINANCIAL INVESTMENTS (continued)
(ii) Interbank forfaiting are receivables bought by the Bank from the designated negotiating bank under negotiable domestic deferred payment letters of credit. The receivables will be paid irrevocably and unconditionally by the issuing bank of letters of credit on due date.
Financial investments are analyzed by issuer as follows:
June 30, December 31, 2016 2015 Available-for-sale financial assets By issuer: – Banks and other financial institutions 42,433,982 33,052,926 – Government 9,886,205 8,831,872 – Corporates 7,953,533 7,207,605
Subtotal 60,273,720 49,092,403 Equity securities 25,000 25,000
Total 60,298,720 49,117,403
Held-to-maturity investments By issuer: – Banks and other financial institutions 20,163,996 19,079,407 – Government 16,858,075 9,712,756 – Corporates 230,000 250,000
Total 37,252,071 29,042,163
Debt instruments classified as receivables By issuer: – Trusts and asset management plans sponsored by non-bank financial institutions 468,111,279 251,104,038 – Wealth management products sponsored by other banks 43,536,669 177,613,646 – Other products sponsored by other banks and non-bank financial institutions 1,297,793 4,786,979
Total 512,945,741 433,504,663
Less: Allowance for impairment losses (3,073,445) (1,611,057)
Debt instruments classified as receivables – Net 509,872,296 431,893,606
94 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
18 FINANCIAL INVESTMENTS (continued)
June 30, 2016 Debt instruments Held for Available- Held-to- classified as trading for-sale maturity receivables Total RMB AAA 4,336,096 5,371,625 735,000 – 10,442,721 AA 1,310,247 1,880,607 700,000 – 3,890,854 A 506,220 506,220 – – 1,012,440 Unrated (i) 7,563,072 50,733,821 35,817,071 509,872,296 603,986,260
Sub-total 13,715,635 58,492,273 37,252,071 509,872,296 619,332,275
Foreign currency A – 596,040 – – 596,040 BBB (ii) 167,678 851,862 – – 1,019,540 BB (ii) – 333,545 – – 333,545 Unrated (i) 6,939 – – – 6,939
Sub-total 174,617 1,781,447 – – 1,956,064
Total 13,890,252 60,273,720 37,252,071 509,872,296 621,288,339
December 31, 2015 Debt instruments Held for Available- Held-to- classified as trading for-sale maturity receivables Total RMB AAA 818,892 6,600,905 3,802,801 – 11,222,598 AA 568,380 468,640 700,000 – 1,737,020 A – 225,137 – – 225,137 Unrated (i) 9,408,019 41,348,914 24,539,362 430,536,314 505,832,609
Sub-total 10,795,291 48,643,596 29,042,163 430,536,314 519,017,364
Foreign currency A – 448,807 – – 448,807 Unrated (i) – – – 1,357,292 1,357,292
Sub-total – 448,807 – 1,357,292 1,806,099
Total 10,795,291 49,092,403 29,042,163 431,893,606 520,823,463
INTERIM REPORT 2016 95 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
18 FINANCIAL INVESTMENTS (continued)
(i) The unrated debt instruments classified as held-for-trading, available-for-sale and held-to-maturity mainly consist of investment and trading securities issued by the PRC Ministry of Finance, central bank, policy banks and other financial institutions which are creditworthy issuers in the market, but are not rated by independent rating agencies. The unrated debt instruments classified as receivables mainly include wealth management products sponsored by other banks with the principal guaranteed, interbank forfaiting investment and trust plans or asset management plans, of which the principal and return are mainly guaranteed by other financial institutions or third-party guarantors, or secured by collateral.
(ii) This actual controllers of the financier of these foreign currency bond are SINO-OCEAN LAND, Huarong (Hong Kong) International Holdings Limited, Shaoxing City Investment, which has good credit in China.
96 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
19 PROPERTY, PLANT AND EQUIPMENT
Motor Construction Buildings Equipments vehicles in progress Total Cost At January 1, 2016 1,220,590 639,339 130,505 1,183,834 3,174,268 Additions 38 30,421 9,622 91,021 131,102 Disposals – (5,744) (2,603) – (8,347)
At June 30, 2016 1,220,628 664,016 137,524 1,274,855 3,297,023
Accumulated depreciation At January 1, 2016 (342,451) (302,717) (84,468) – (729,636) Charge for the period (21,833) (35,622) (7,397) – (64,852) Disposals – 5,144 2,471 – 7,615
At June 30, 2016 (364,284) (333,195) (89,394) – (786,873)
Net book value At June 30, 2016 856,344 330,821 48,130 1,274,855 2,510,150
Cost At January 1, 2015 1,218,023 524,418 118,910 586,481 2,447,832 Additions 547 120,812 20,614 600,080 742,053 Transfer in/(out) 2,120 607 – (2,727) – Disposals – (6,460) (9,019) – (15,479) Other transfer out (100) (38) – – (138)
At December 31, 2015 1,220,590 639,339 130,505 1,183,834 3,174,268
Accumulated depreciation At January 1, 2015 (298,947) (245,843) (78,533) – (623,323) Charge for the year (43,504) (62,817) (13,962) – (120,283) Disposals – 5,943 8,027 – 13,970
At December 31, 2015 (342,451) (302,717) (84,468) – (729,636)
Net book value At December 31, 2015 878,139 336,622 46,037 1,183,834 2,444,632
INTERIM REPORT 2016 97 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
20 DEFERRED INCOME TAXES
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset income tax assets against income tax liabilities and when the deferred income taxes related to income taxes levied by the same taxation authority. The movements for deferred tax assets and liabilities recognized are as follows:
Charged At to other At January 1, Charged to comprehensive June 30, 2016 profit or loss income 2016 Deferred income tax assets: Impairment allowances for assets 1,891,140 694,165 – 2,585,305 Staff Salary and welfare payable 566,000 (44,084) – 521,916 Fair value changes of derivative instruments 44,054 (37,980) – 6,074 Others 418 3,057 – 3,475
Subtotal 2,501,612 615,158 – 3,116,770
Deferred income tax liabilities: Fair value changes of financial assets at fair value through profit or loss (65,012) 44,296 – (20,716) Fair value changes of financial assets available for sale (319,483) – 117,050 (202,433) Others (11,846) 11,846 – –
Subtotal (396,341) 56,142 117,050 (223,149)
Net deferred income tax 2,105,271 671,300 117,050 2,893,621
98 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
20 DEFERRED INCOME TAXES (continued)
Charged At to other At January 1, Charged to comprehensive December 31, 2015 profit or loss income 2015 Deferred income tax assets: Impairment allowances for assets 984,145 906,995 – 1,891,140 Staff Salary and welfare payable 302,208 263,792 – 566,000 Fair value changes of derivative instruments 23,374 20,680 – 44,054 Others 69 349 – 418
Subtotal 1,309,796 1,191,816 – 2,501,612
Deferred income tax liabilities: Fair value changes of financial assets at fair value through profit or loss (8,391) (56,621) – (65,012) Fair value changes of financial assets available for sale (50,127) – (269,356) (319,483) Others – (11,846) – (11,846)
Subtotal (58,518) (68,467) (269,356) (396,341)
Net deferred income tax 1,251,278 1,123,349 (269,356) 2,105,271
INTERIM REPORT 2016 99 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
21 OTHER ASSETS
June 30, December 31, 2016 2015 Interest receivable (i) 3,636,842 4,095,911 Land use rights (ii) 376,825 382,503 Advance payments 335,960 173,840 Long-term prepaid expenses 300,672 321,622 Other receivables 298,061 706,794 Less: impairment allowance (32,535) (31,353) Guaranteed deposits paid 192,235 24,701 Funds to be settled 174,039 86,475 Intangible assets (iii) 156,882 160,826 Foreclosed assets 33,960 33,960 Others 1,084,669 350,231
Total 6,557,610 6,305,510
(i) Interest receivable
June 30, December 31, 2016 2015 Financial investments and financial assets at fair value through profit or loss 2,493,179 2,521,257 Loans and advances to customers 884,758 788,290 Due from banks, other financial institutions, and central bank 258,905 786,364
Total 3,636,842 4,095,911
100 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
21 OTHER ASSETS (continued)
(ii) Land use rights
June 30, December 31, 2016 2015
Cost Balance at beginning of the period/year 437,162 437,162 Additions – –
Balance at end of the period/year 437,162 437,162
Accumulated amortization Beginning of the period/year (54,659) (43,303) Additions (5,678) (11,356)
End of the period/year (60,337) (54,659)
Net book value End of the period/year 376,825 382,503
The net book value of land use rights is analyzed based on the remaining terms of the leases as follows:
June 30, December 31, 2016 2015 Held outside Hong Kong – on medium-term lease (10-50 years) 376,825 382,503
INTERIM REPORT 2016 101 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
21 OTHER ASSETS (continued)
(iii) Intangible assets
Intangible assets of the Bank are mainly computer software.
June 30, December 31, 2016 2015 Cost Balance at beginning of the period/year 270,735 216,703 Additions 9,129 54,032
Balance at end of the period/year 279,864 270,735
Accumulated amortization Balance at beginning of the period/year (109,909) (87,807) Additions (13,073) (22,102)
Balance at end of the period/year (122,982) (109,909)
Net book value End of the period/year 156,882 160,826
22 DUE TO OTHER BANKS AND FINANCIAL INSTITUTIONS
June 30, December 31, 2016 2015 Deposits from banks and other financial institutions 300,407,517 324,194,889 Placements from banks and other financial institutions 16,014,066 2,857,924 Securities sold under repurchase agreements 13,650,000 20,671,000 Notes sold under repurchase agreements 4,550,579 6,933,544
Total 334,622,162 354,657,357
102 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
23 CUSTOMER DEPOSITS
June 30, December 31, 2016 2015 Corporate demand deposits 241,366,700 179,985,599 Corporate time deposits 373,324,068 310,115,626 Individual demand deposits 6,755,983 6,381,855 Individual time deposits 17,211,885 15,298,848 Other deposits 5,896,357 4,244,368
Total 644,554,993 516,026,296
Including: Pledged deposits held as collateral 91,554,127 75,174,823
24 FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS
June 30, December 31, 2016 2015 Financial liabilities designated as fair value through profit or loss: Financial liabilities related to precious mental contracts (i) 12,003,319 500,020 Transaction financial liabilities: Short position of securities held for trading 133,052 –
Total 12,136,371 500,020
(i) The bank borrows funds through the deal of precious metals, which means borrowing gold through interbank borrowing and then selling it in the spot trading market. The bank has set up formal documents to clarify that the portfolio of the financial liabilities is managed and evaluated on a fair value basis. And its information is provided internally on that basis to the management.
INTERIM REPORT 2016 103 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
25 DEBT SECURITIES ISSUED
June 30, December 31, 2016 2015 Fixed rate subordinated debts – 2021 (i) 3,250,000 3,250,000 Fixed rate financial bonds – 2018 (ii) 1,500,000 1,500,000 Fixed rate financial bonds – 2019 (iii) 4,500,000 4,500,000 Fixed rate financial bonds – 2020 (iv) 5,000,000 5,000,000 Fixed rate financial bonds – 2021 (v) 10,000,000 – Interbank certificates of deposit 74,311,446 75,686,036
Total 98,561,446 89,936,036
(i) Fixed-rate subordinated debt of RMB 3.25 billion was issued on November 25, 2011, with a maturity of 10 years and a fixed coupon rate of 6.50% per annum payable annually. The Bank has an option to redeem all the debts at face value on November 28, 2016.
(ii) Fixed-rate financial bond of RMB 1.5 billion was issued on September 11, 2013, with a maturity of 5 years and a fixed coupon rate of 5.00% per annum payable annually. The Bank has no option to redeem the bond before maturity.
(iii) Fixed-rate financial bond of RMB 4.5 billion was issued on March 10, 2014, with a maturity of 5 years and a fixed coupon rate of 5.70% per annum payable annually. The Bank has no option to redeem the bond before maturity.
(iv) Fixed-rate financial bond of RMB 5 billion was issued on December 24, 2015, with a maturity of 5 years and a fixed coupon rate of 3.88% per annum payable annually. The Bank has no option to redeem the bond before maturity.
(v) Fixed-rate financial bond of RMB 10 billion was issued on February 24, 2016, with a maturity of 5 years and a fixed coupon rate of 3.60% per annum payable annually. The Bank has no option to redeem the bond before maturity.
As of June 30, 2016, there are no defaults on principal and interest or other breaches to the agreements with respect to debt, bonds or interbank certificates of deposit.
104 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
26 OTHER LIABILITIES
June 30, December 31, 2016 2015 Interest payable (i) 10,102,196 10,424,981 Settlement fund 9,515,074 1,758,182 Salary and welfare payable (ii) 3,675,427 3,397,286 Dividends payable 2,345,738 33,642 Sundry tax payables 524,241 427,893 Promissory note and certified check issued 15,648 2,424,554 Deferred income 1,420 4,036 Others 242,818 173,558
Total 26,422,562 18,644,132
(i) Interest payable
June 30, December 31, 2016 2015 Customer Deposits 7,420,081 6,834,399 Due to banks and other financial institutions 2,125,245 3,284,315 Debt securities issued 556,870 306,267
Total 10,102,196 10,424,981
(ii) Salary and welfare payable
June 30, December 31, 2016 2015 Salary, bonus and allowance 3,636,584 3,348,951 Labor union fee and staff education expenses 38,843 48,335
Total 3,675,427 3,397,286
INTERIM REPORT 2016 105 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
27 SHARE CAPITAL AND CAPITAL RESERVE
All shares of the Bank issued are fully paid common shares, with par value of RMB 1 per share. The Bank’s number of shares is as follows:
June 30, December 31, 2016 2015 Number of shares authorized, issued and fully paid at par value (in thousands) (i) 17,959,697 14,509,697
(i) On March 30, 2016, the Bank listed on Hong Kong Stock Exchange, and exercised all its Green Shoe Option on April 19, 2016. The total number of H shares issued globally this time was 3,795,000,000 (including 3,450,000,000 new H shares and 345,000,000 shares sold by selling shareholders). The offering price was HK$3.96 per share, each share at the par value of 1.00 RMB.
Generally, transactions of the following nature were recorded in the capital reserve:
• Share premium arising from the issuance of shares at prices in excess of their par value;
• Donations received from shareholders; and
• Any other items required by the PRC regulations.
Capital reserve can be utilized for increasing paid-in capital as approved by the shareholders.
As of June 30, 2016, the Bank’s capital reserve is shown as follows:
June 30, December 31, 2016 2015 Share premium (ii) 20,151,780 12,181,167
(ii) The bank recognized the share premium after deducting direct issuing cost (including underwriting fees and some other professional agency fees) as capital reserve.
106 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
28 SURPLUS RESERVE AND STATUTORY GENERAL RESERVE
Statutory Surplus general reserve (i) reserve (ii) Balance at January 1, 2016 2,775,091 8,241,258 Appropriation to statutory general reserve – 5,001,198
Balance at June 30, 2016 2,775,091 13,242,456
Balance at January 1, 2015 2,070,022 4,639,490 Appropriation to statutory surplus reserve 705,069 – Appropriation to statutory general reserve – 3,601,768
Balance at December 31, 2015 2,775,091 8,241,258
(i) Surplus reserve
Pursuant to the relevant PRC regulations, the Bank is required to transfer 10% of its net profit to the non-distributable statutory surplus reserve. Appropriation to the statutory surplus reserve may cease when the balance of this reserve has reached 50% of share capital. Subject to the approval of general meeting of shareholders, the statutory surplus reserve can be used for replenishing accumulated losses or increasing the Bank’s ordinary share capital. The statutory surplus reserve amount used to increase the ordinary share capital is limited to a level where the balance of the statutory surplus reserve after such capitalization is not less than 25% of the ordinary share capital before capitalization.
(ii) Statutory general reserve
Pursuant to Caijin [2012] No. 20 “Requirements on Impairment Allowance for Financial Institutions” (the “Requirement”), effective on July 1, 2012, on the basis of impairment allowance, the Bank establishes a statutory general reserve within equity through the appropriation of profit to address unidentified potential impairment risks. The statutory general reserve should not be less than 1.5% of the aggregate amount of risk assets as defined by the Requirement.
INTERIM REPORT 2016 107 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
29 INVESTMENT REVALUATION RESERVE
Pre-tax amount Tax charge Net of tax Balance at January 1, 2016 1,277,931 (319,483) 958,448 Fair value changes in available-for-sale (134,656) 33,663 (100,993) Less: Amounts previously recognized in other comprehensive income reclassified to profit or loss (333,548) 83,387 (250,161)
Balance at June 30, 2016 809,727 (202,433) 607,294
Balance at January 1, 2015 200,507 (50,127) 150,380 Fair value changes in available-for-sale 1,407,765 (351,941) 1,055,824 Less: Amounts previously recognized in other comprehensive income reclassified to profit or loss (330,341) 82,585 (247,756)
Balance at December 31, 2015 1,277,931 (319,483) 958,448
30 DIVIDENDS
Under the PRC Company Law and the Bank’s Articles of Association, the net profit after tax as reported in the PRC statutory financial statements can only be distributed as dividends after allowances for the following:
• Making up prior year’s cumulative losses, if any;
• Appropriation to the non-distributable statutory surplus reserve of 10% of the net profit of the Bank.
In accordance with the relevant regulations, after the Bank’s initial public offering, the net profit after tax of the Bank for the purpose of profit distribution is deemed to be the lesser of (i) the retained profits determined in accordance with the Chinese Accounting Standard and (ii) the retained profit determined in accordance with IFRS.
At the Shareholders Meeting of the bank held on June 15, 2016, The 2015 Annual Profit Distribution Plan of China Zheshang Bank Co., Ltd was approved. The Bank proposed a cash dividend of RMB1.3 (including tax) for every 10 shares, a total cash dividend of RMB2.335 billion based on the 17,959,696,778 of shares in total after the initial exercise of Green Shoe option.
108 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
31 UNCONSOLIDATED STRUCTURED ENTITIES
(a) Unconsolidated structured entities managed by the Bank
The unconsolidated structure entities managed by the Bank are wealth management products sponsored and managed by the Bank acting as an agent. Based on the analysis and research of the potential target customers, the Bank designs and offers wealth management products to meet the needs of the customers. The raised funds were invested in relevant financial markets or financial products in accordance with the contractual term of the product agreements. Investment returns would be allocated to investors according to contractual agreements. The Bank receives commission income as the manager of these wealth management products. The Bank considered its variable returns from its involvement with the structured entities are insignificant and hence it does not consolidate these structured entities.
As of June 30, 2016, the balance of unconsolidated wealth management products sponsored and managed by the Bank in terms of size amounted to RMB 242,560 million (December 31, 2015: RMB 213,856 million). The Bank’s maximum exposure to these unconsolidated structured presented by entities is management fee income which amount is insignificant.
During the period ended June 30, 2016, the Bank did not provide financial or other support to these structured entities.
(b) Unconsolidated structured entities invested by the Bank
As of June 30, 2016, the Bank invests in a number of unconsolidated structured entities mainly consisting of wealth management products, trust plans and the asset management plans sponsored and managed by other independent third parties. All our investments in wealth management products issued by other commercial banks were principal-protected.
During the periods ended June 30, 2016, the Bank did not provide financial or other support to these structured entities.
The table below sets out the carrying value and the Bank’s maximum exposure (including interest receivable) to these unconsolidated structured entities.
Maximum exposure At June 30, 2016 Carrying value to loss Debt instruments classified as receivables – Trust plans and asset management plans 468,111,279 468,888,294 – Wealth management products sponsored by banks 43,536,669 43,536,669
INTERIM REPORT 2016 109 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
31 UNCONSOLIDATED STRUCTURED ENTITIES (continued)
(b) Unconsolidated structured entities invested by the Bank (continued)
Maximum exposure At December 31, 2015 Carrying value to loss Debt instruments classified as receivables – Trust plans and asset management plans 251,104,038 251,735,711 – Wealth management products sponsored by banks 177,613,646 177,613,646
32 FINANCIAL GUARANTEE AND CREDIT COMMITMENTS, OTHER COMMITMENTS AND CONTINGENT LIABILITIES
(a) Financial guarantee and other credit commitments
June 30, December 31, 2016 2015 Acceptances 131,352,319 122,164,834 Letters of credit issued 103,204,745 88,744,036 Letters of guarantee issued 42,584,919 43,030,538 Unused credit card limit 5,475,784 2,806,182 Loan commitments 4,302,500 5,388,500
Total 286,920,267 262,134,090
(b) Capital commitment
June 30, December 31, 2016 2015 Authorized but not contracted 1,997,167 97,083 Contracted but not yet incurred 164,675 375,839
Total 2,161,842 472,922
110 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
32 FINANCIAL GUARANTEE AND CREDIT COMMITMENTS, OTHER COMMITMENTS AND CONTINGENT LIABILITIES (continued)
(c) Operating leasing commitment
The future minimum lease payments under irrevocable rental contract are listed as follows:
June 30, December 31, 2016 2015 Within one year 396,290 370,139 Between one year and five years 1,286,647 1,195,678 More than five years 631,017 510,769
Total 2,313,954 2,076,586
(d) Legal proceedings
As of June 30, 2016 and December 31 2015, the management of the Bank believes the legal proceedings initiated against the Bank would not have a material impact on the Bank’s the financial position or operations.
33 ASSETS PLEDGED
June 30, December 31, 2016 2015 Bonds 28,283,046 35,095,222 Bills 4,560,506 6,937,716
Total 32,843,552 42,032,938
Assets above are pledged as collateral mainly for the repurchase agreements with other financial institutions, the pledge business of treasury’s cash management, entrusted loans business of foreign exchange.
INTERIM REPORT 2016 111 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
34 CREDIT RISK-WEIGHTED AMOUNT OF FINANCIAL GUARANTEES AND CREDIT RELATED COMMITMENTS
June 30, December 31, 2016 2015 Financial guarantees and credit related commitments 71,087,414 73,269,343
The credit risk-weighted amount refers to the amount as computed in accordance with the formula promulgated by the CBRC and depends on the status of the counterparty and the maturity characteristics. The risk weightings used range from 0% to 100% for contingent liabilities and credit related commitments.
35 CASH AND CASH EQUIVALENTS
For the purposes of the statements of cash flow, cash and cash equivalents comprise the following balances with original maturities of less than three months used for the purpose of meeting short-term cash commitments:
June 30, December 31, 2016 2015 Cash 245,018 237,660 Surplus deposit reserve with central bank 13,574,285 11,856,106 Deposits and placements with banks and other financial institutions 17,959,532 6,901,542
Total 31,778,835 18,995,308
112 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
36 RELATED PARTY TRANSACTIONS
Related party transactions of the Bank mainly refer to loans and deposits, which are proceeded in the normal course and terms of business, with consistent pricing policies as in transactions with independent third parties.
(a) Transactions with the main related party
Shareholding Ratio (%) June 30, December 31, 2016 2015 Name of Shareholders Zhejiang Provincial Financial Holdings Co., Ltd. 14.79 19.96
As of June 30, 2016, Zhejiang Provincial Financial Holdings Co., Ltd. (“ZJFH”) ‘s balance of deposits with the Bank was RMB742,149 thousand. For the period ended of June 30, 2016, the amount of interest expense for ZJFH’s deposit with the Bank was RMB 3,120 thousand.
(b) Transactions with other related parties
(i) The amounts and relevant interest rate spectrum of transactions with other shareholders (including their subsidiaries) who have influence over financial and operating policies of the bank and with the Bank’s directors, supervisors and senior management and their family members are as follows:
June 30, December 31, 2016 2015 Customer deposits 6,369,645 7,940,810 Loans and advances to customers 811,260 1,006,560 Acceptances 122,606 166,590 Letters of guarantee 73,000 –
June 30, December 31, 2016 2015 Customer deposits 0.35%-5.10% 0.35%-5.10% Loans and advances to customers 4.35%-5.34% 4.35%-6.42%
Six months ended June 30, 2016 2015 Interest expense 241,109 3,190 Interest income 29,943 28,170 Fee and commission income 333 51
INTERIM REPORT 2016 113 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
36 RELATED PARTY TRANSACTIONS (continued)
(c) Government related entities
The transactions between the Bank and the government authorities, agencies, affiliates and other state controlled entities proceed under normal commercial terms and conditions. These transactions mainly include provision of credit and guarantee, deposits, foreign exchange transactions, derivative transactions, agency service, underwriting of bonds issued by government agencies, purchases, sales and redemption of securities issued by government agencies. Management considers that transactions with these entities are activities conducted in the ordinary course of business. The Bank has also established pricing policies for products and services and such pricing policies do not depend on whether or not the customers are government authorities, agencies, affiliates and other state controlled entities.
(d) Key management personnel
Key management personnel are those persons who have the authority and responsibility to plan, direct and control the activities of the Bank.
The Bank enters into banking transactions with key management personnel in the normal course of business. During the period ended June 30, 2016 the Bank had no material transactions with key management personnel (six months ended June 30, 2015: nil).
37 SEGMENT ANALYSIS
(a) Business segments
The Bank manages the business from both business and geographic perspectives. From the business perspective, the Bank provides services through four main business segments listed below:
• Corporate banking – The corporate banking segment provides financial products and services to corporations, government agencies and financial institutions. The range of products and services includes corporate loans and advances, trade finance, deposit products and other types of corporate intermediary services.
• Retail banking – The retail banking segment provides financial products and services to individual customers. The range of products and services includes personal loans and advances, deposit products, bank cards business and other types of personal intermediary services.
• Treasury business – The treasury business conducts money market and repurchase transactions, debt instruments investments and financial derivatives business for proprietary trading or on behalf of customers.
• Others – Others comprise components of the Bank that are not attributable to any of the above segments, along with services that could not be allocated on a reasonable basis.
114 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
37 SEGMENT ANALYSIS (continued)
(a) Business segments (continued)
For the six months ended June 30, 2016 Corporate Retail Treasury banking banking business Others Total External interest income 12,074,921 2,134,837 12,453,711 – 26,663,469 External interest expense (5,997,329) (200,369) (8,503,935) – (14,701,633) Inter-segment net interest income/(expenses) 631,686 (628,222) (3,464) – –
Net interest income 6,709,278 1,306,246 3,946,312 – 11,961,836
Net fee and commission income 833,297 27,309 2,346,047 – 3,206,653
Net trading gains – – 192,450 – 192,450 Net gains on financial investments 250,682 – 333,548 – 584,230 Other operating income 172 1,473 – 17,561 19,206
Operating income 7,793,429 1,335,028 6,818,357 17,561 15,964,375 Operating expenses (2,583,372) (475,704) (1,523,921) (6,096) (4,589,093) – Depreciation and amortization (55,492) (8,967) (49,388) (38) (113,885) Impairment losses on assets (4,674,090) (455,208) – – (5,129,298)
Profit before income tax 535,967 404,116 5,294,436 11,465 6,245,984
Capital expenditure 69,667 9,513 70,122 261 149,563
June 30, 2016 Corporate Retail Treasury banking banking business Others Total Segment assets 549,056,598 74,976,481 552,651,655 2,056,108 1,178,740,842 Unallocated assets – – – – 2,893,621
Total assets – – – – 1,181,634,463
Segment liabilities (629,896,100) (24,668,548) (451,832,894) (12,110,337) (1,118,507,879)
INTERIM REPORT 2016 115 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
37 SEGMENT ANALYSIS (continued)
(a) Business segments (continued)
For the six months ended June 30, 2015 Corporate Retail Treasury banking banking business Others Total External interest income 9,086,482 1,948,410 10,019,521 – 21,054,413 External interest expense (4,831,520) (282,189) (6,836,999) – (11,950,708) Inter-segment net interest income/(expenses) 1,233,056 (633,780) (599,276) – –
Net interest income 5,488,018 1,032,441 2,583,246 – 9,103,705
Net fee and commission income 960,511 5,147 470,771 – 1,436,429
Net trading losses (28,974) – (217,529) – (246,503) Net gains on financial investments – – 224,850 – 224,850 Other operating income – 890 – 14,163 15,053
Operating income 6,419,555 1,038,478 3,061,338 14,163 10,533,534 Operating expenses (2,159,802) (398,460) (633,192) (7,550) (3,199,004) – Depreciation and amortization (59,575) (9,519) (32,792) (65) (101,951) Impairment losses on assets (2,682,746) (243,480) – – (2,926,226)
Profit before income tax 1,577,007 396,538 2,428,146 6,613 4,408,304
Capital expenditure 34,559 5,234 38,032 97 77,922
June 30, 2015 Corporate Retail Treasury banking banking business Others Total Segment assets 392,907,244 59,504,900 432,388,276 1,107,892 885,908,312 Unallocated assets – – – – 1,587,266
Total assets – – – – 887,495,578
Segment liabilities (432,841,240) (21,224,668) (385,416,098) (2,855,990) (842,337,996)
116 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
37 SEGMENT ANALYSIS (continued)
(b) Geographical segments
Geographically, the Bank mainly conducts its business in the four areas listed below in Mainland China.
• “Eastern China” refers to the head office and the following areas serviced by the tier-one branches of the Bank: Head Office, Hangzhou, Ningbo, Wenzhou, Yiwu, Shaoxing, Shanghai, Nanjing, Suzhou, Zhoushan;
• “Northern China” refers to the following areas serviced by the tier-one branches of the Bank: Beijing, Tianjin, Jinan, Shenyang;
• “Southern China” refers to the following areas serviced by the tier-one branches of the Bank: Shenzhen, Guangzhou; and
• “Western China” refers to the following areas serviced by the tier-one branches of the Bank: Chengdu, Xi’an, Lanzhou, Chongqing, Wuhan.
For the six months ended June 30, 2016 East North South Western China China China China Elimination Total External interest income 16,641,065 4,768,412 1,204,278 4,049,714 – 26,663,469 External interest expense (9,480,628) (2,837,638) (689,292) (1,694,075) – (14,701,633) Inter-segment net interest income/(expenses) 350,369 87,481 76,020 (513,870) – –
Net interest income 7,510,806 2,018,255 591,006 1,841,769 – 11,961,836 Net fee and commission income 2,907,063 149,747 67,046 82,797 – 3,206,653 Net trading gains 192,450 – – – – 192,450 Net gains on financial investments 382,998 153,913 41,158 6,161 – 584,230 Other operating income 14,319 3,647 188 1,052 – 19,206
Operating income 11,007,636 2,325,562 699,398 1,931,779 – 15,964,375 Operating expenses (3,114,545) (686,145) (214,874) (573,529) – (4,589,093) – Depreciation and amortization (86,881) (14,074) (3,002) (9,928) – (113,885) Impairment losses on assets (2,614,818) (1,183,457) (77,386) (1,253,637) – (5,129,298)
Profit before income tax 5,278,273 455,960 407,138 104,613 – 6,245,984
Capital expenditure 83,615 344 1,684 63,920 – 149,563
INTERIM REPORT 2016 117 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
37 SEGMENT ANALYSIS (continued)
(b) Geographical segments (continued)
June 30, 2016 Western East China North China South China China Elimination Total Segment assets 1,066,870,813 233,697,621 69,280,741 188,858,377 (379,966,710) 1,178,740,842 Unallocated assets – – – – – 2,893,621
Total assets – – – – – 1,181,634,463
Segment liabilities (1,001,928,510) (233,409,916) (68,950,167) (188,442,503) 374,223,217 (1,118,507,879)
For the six months ended June 30, 2015 Western East China North China South China China Elimination Total External interest income 13,037,960 4,400,881 507,248 3,108,324 – 21,054,413 External interest expense (7,519,075) (2,480,917) (493,235) (1,457,481) – (11,950,708) Inter-segment net interest income/(expenses) 167,969 (128,624) 193,006 (232,351) – –
Net interest income 5,686,854 1,791,340 207,019 1,418,492 – 9,103,705 Net fee and commission income 953,941 211,336 31,133 240,019 – 1,436,429 Net trading gains/(losses) (215,571) (32,546) 34 1,580 – (246,503) Net gains on financial investments 224,850 – – – – 224,850 Other operating income 10,028 3,161 80 1,784 – 15,053
Operating income 6,660,102 1,973,291 238,266 1,661,875 – 10,533,534 Operating expenses (2,072,643) (617,839) (101,576) (406,946) – (3,199,004) – Depreciation and amortization (79,061) (13,120) (1,730) (8,040) – (101,951) Impairment losses on assets (2,006,301) (405,156) (100,773) (413,996) – (2,926,226)
Profit before income tax 2,581,158 950,296 35,917 840,933 – 4,408,304
Capital expenditure 71,456 6,111 97 258 – 77,922
June 30, 2015 Western East China North China South China China Elimination Total Segment assets 856,579,863 211,380,842 43,702,028 134,777,129 (360,531,550) 885,908,312 Unallocated assets – – – – – 1,587,266
Total assets – – – – – 887,495,578
Segment liabilities (815,938,920) (210,042,047) (43,641,013) (133,247,566) 360,531,550 (842,337,996)
118 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
38 UNSECURED WEALTH MANAGEMENT PRODUCTS
The Bank issues and manages unsecured wealth management products to institutional and individual investors. The funds raised from the institutional and individual investors are mainly invested in the open market bonds, trust plans and directional asset management plans.
The Bank assesses its control on the unsecured wealth management products. The Bank takes a fiduciary role on these wealth management products and has no contractual obligation to repay the principal or interest. The risk exposure of the products is mainly from the fluctuation of the expected return of the bonds market, the performance of trust plans and the performance of directional asset management plans. The risk of loss is borne by the investors. The Bank earns the net fee and commission income from the products.
As at June 30, 2016, the balance of funds raised from the unsecured wealth management products were RMB 242,560,136 thousand (31 December 2015: RMB 213,855,837 thousand). The Bank has recognized net fee and commission income from unsecured wealth management products with the amount of RMB 2,260,518 thousand for the six months ended June 30, 2016 through provision of asset management service.
39 FINANCIAL RISK MANAGEMENT
Overview
The Bank’s activities expose it to a variety of financial risks and those activities involve analysis, evaluation, acceptance and management of some degree of risks or combination of risks. Managing those risks are crucial to the financial business, and operational risks are an inevitable consequence of being in business. The Bank’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance.
The Bank’s risk management policies are designed to identify and analyze these risks, to set appropriate risk limits and control programs, and to monitor the risks and adherence to limits by means of reliable and up-to- date information systems.
The Board of Directors is responsible for establishing the overall risk appetite of the Bank, and reviewing and approving its risk management objectives and strategies. Management establishes and implements corresponding risk management policies and procedures according to the risk management objectives and strategies. Internal audit department is responsible for the independent review of risk management and the internal control.
The primary financial risks the Bank is exposed to are credit risk, market risk (including interest rate risk, foreign exchange risk), and liquidity risk.
INTERIM REPORT 2016 119 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
40 ENTRUSTED LOANS
The Bank grants entrusted loans on behalf of third-party lenders, which are not included in the financial statements.
June 30, December 31, 2016 2015 Entrusted loans 68,714,107 48,680,706
41 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES
(a) Fair value hierarchy
IFRS 13 specifies a hierarchy of fair value measurement based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources; unobservable inputs reflect the Bank’s market assumptions. These two types of inputs have created the following fair value hierarchy:
• Level 1: Inputs based on quoted prices (unadjusted) in active markets for identical assets or liabilities. This level includes listed equity securities and debt instruments on exchanges (for example, Hong Kong Stock Exchange).
• Level 2: Using observable inputs other than quoted prices for assets or liabilities within Level 1, either directly (that is, as prices) or indirectly (that is, derived from prices). This level includes over-the-counter derivatives and debt instruments traded in interbank market. The input parameters like bond yield curve or counterparty credit risk are based on data from China Bond and Bloomberg.
• Level 3: Inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).
(b) Financial instruments not measured at fair value
Financial assets and liabilities in the statement of financial position which are not measured at fair value mainly include: balances with the central bank, due from banks and other financial institutions, loans and advances to customers, financial investments-held-to-maturity, financial investments-debt instruments classified as receivables, due to banks and other financial institutions, deposits from customers and debt securities issued.
The table below summarizes the carrying amounts and fair values of those financial assets and financial liabilities that are not measured at fair value on June 30, 2016, including financial investments-held-to- maturity, financial investments-debt instruments classified as receivables and debt securities issued. For the other financial instruments not measured at fair value in the statement of financial position, their fair value approximates carrying amount.
120 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
41 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (continued)
(b) Financial instruments not measured at fair value (continued)
June 30, 2016 Carrying value Fair value Level 1 Level 2 Level 3 Total Financial assets Financial investments – Held-to-maturity 37,252,071 – 38,017,240 – 38,017,240 Financial investments – Debt instruments classified as receivables 509,872,296 – 430,103,629 80,848,008 510,951,637
Total 547,124,367 – 468,120,869 80,848,008 548,968,877
Financial liabilities Debt securities issued (98,561,446) – (98,335,569) – (98,335,569)
December 31, 2015 Carrying value Fair value Level 1 Level 2 Level 3 Total Financial assets Financial investments – Held-to-maturity 29,042,163 – 29,955,988 – 29,955,988 Financial investments – Debt instruments classified as receivables 431,893,606 – 382,418,387 50,917,921 433,336,308
Total 460,935,769 – 412,374,375 50,917,921 463,292,296
Financial liabilities Debt securities issued (89,936,036) – (89,538,488) – (89,538,488)
INTERIM REPORT 2016 121 Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
41 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (continued)
(b) Financial instruments not measured at fair value (continued)
(i) Held-to-maturity investments and debt instruments classified as receivables
Held-to-maturity investments and debt instruments classified as receivables whose fair value is based on quoted market prices are included in level 1. If the quoted market prices are determined by reference to instruments with similar credit risk, maturity and yield characteristics where applicable, the fair value measurement will be included in level 2. When such information is not available and the estimated fair value represents the discounted amount of estimated future cash flows expected to be received are based on observable yield curves, the fair value measurement will be included in level 3.
(ii) Debt securities issued
If the fair value of debt securities issued is based on quoted market prices, it will be included in level 1. When the fair value of debt securities issued is determined by valuation techniques and all significant inputs required to calculate fair value are observable, it is included in level 2.
(c) Financial instruments measured at fair value
June 30, 2016 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss – Debt securities – 13,890,252 – 13,890,252 Derivative financial assets – 1,043,314 – 1,043,314 Financial investments – Available-for-sale – 60,273,720 25,000 60,298,720 – Debt securities – 59,148,377 – 59,148,377 – Interbank certificates of deposit – 1,125,343 – 1,125,343 – Equity investment – – 25,000 25,000
Total – 75,207,286 25,000 75,232,286
Financial liabilities at fair value through profit or loss – (12,136,371) – (12,136,371) Derivative financial liabilities – (1,073,354) – (1,073,354)
Total – (13,209,725) – (13,209,725)
122 CHINA ZHESHANG BANK CO., LTD. Notes to the Condensed Interim Financial Information (All amounts expressed in thousands of RMB unless otherwise stated)
41 FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (continued)
(c) Financial instruments measured at fair value (continued)
December 31, 2015 Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss – Debt securities – 10,795,291 – 10,795,291 Derivative financial assets – 458,534 – 458,534 Financial investments – Available-for-sale – 49,092,403 25,000 49,117,403 – Debt securities – 48,072,368 – 48,072,368 – Interbank certificates of deposit – 1,020,035 – 1,020,035 – Equity investment – – 25,000 25,000
Total – 60,346,228 25,000 60,371,228
Financial liabilities at fair value through profit or loss – (500,020) – (500,020) Derivative financial liabilities – (134,727) – (134,727)
Total – (634,747) – (634,747)
The Bank uses valuation techniques to determine the fair value of financial instruments when open quotation in active markets is not available. The main parameters used in valuation techniques for financial instruments held by the Bank include bond prices, interest rates, foreign exchange rates, equity and stocks prices, volatilities, correlations, early repayment rates, counterparty credit spreads and others, which are basically observable and obtainable from open market.
INTERIM REPORT 2016 123 Subsequent Financial Statements
Up to the date of this report, the Bank had no material events for disclosure after June 30, 2016.
124 CHINA ZHESHANG BANK CO., LTD.